-----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, IO19+wrncciY6V22pw8sGigCTuruw55kN9wwRZfcOVGCGxcsY4xCYRU2k+q+riWA mSwyHWoLEgfUNSfrIUQmuA== 0000950134-98-007980.txt : 19981008 0000950134-98-007980.hdr.sgml : 19981008 ACCESSION NUMBER: 0000950134-98-007980 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 29 FILED AS OF DATE: 19981007 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: 98722086 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: 98722087 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. 2 TO FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1998 REGISTRATION NO. 333-60355 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- AMENDMENT NO. 2 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 prospectus supplement relating to an exchange offer for units of limited partnership interest in Casa Del Mar Associates Limited Partnership, (ii) a base prospectus to be used for the offering and issuance of securities in connection with acquisitions of businesses, properties, securities or other assets, and (iii) 44 additional prospectus supplements relating to exchange offers for units of limited partnership interest in the following limited partnerships: Baywood Partners, Ltd. Brampton Associates Partnership Buccaneer Trace Limited Partnership Burgundy Court Associates, L.P. Calmark/Fort Collins, Ltd. Calmark Heritage Park II Ltd. 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, Ltd. Minneapolis Associates II Limited Partnership Northbrook Apartments, Ltd. Olde Mill Investors Limited Partnership Orchard Park Apartments Limited Partnership Park Towne 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 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CASA DEL MAR ASSOCIATES 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 4 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 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 Casa Del Mar 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-29 Expected Benefits of the Offer............... S-30 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-35 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-36 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-41 General...................................... S-41 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-58 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 5
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions and Transfers of Units......... S-77
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 6 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 Casa Del Mar 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 million. Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP? A: In June, 1997, we acquired the managing general partner of your partnership (the "general partner"). In 1997, we also acquired a 95% non-voting interest in 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 7 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 8 - 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 on your partnership's units 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). 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 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. 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 S-3 9 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. In August, 1997, we offered to acquire all units of your partnership at a price of $2,648 in cash per unit. In June, 1998, we offered to acquire all units of your partnership at price of $21,668 in cash 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. 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 10 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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 11 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 12 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. 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. 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 5 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. 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 S-7 13 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 14 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 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 S-9 15 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 16 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, 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. 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 S-11 17 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. In June, 1997, we acquired the general partner of your partnership. In 1997, we also acquired a 95% non-voting interest in the company that manages the property owned by your partnership. We conducted two prior tender offers for units of your partnership. In August, 1997 we acquired a 0.7576% limited partnership interest in your partnership through the first tender offer. In June 1998, we acquired an additional 0.3788% limited partnership interest in your partnership through the second tender offer. We currently own a 1.1364% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 has required funding from its partners. Continuation of its operations is dependent on additional funding from partners or from other sources. Your partnership faces maturity S-12 18 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. 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. S-13 19 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 20 - 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 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 S-15 21 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Forecasted net operating income (January 1, 1998 to December 31, 1998)................................................. $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ Plus: Cash and cash equivalents(1).......................... Plus: Other partnership assets, net of security deposits(1)............................................... Less: Mortgage debt, including accrued interest(1).......... Less: Notes payable, including accrued interest(1).......... Less: Accounts payable and accrued expenses(1).............. Less: Other liabilities(1).................................. 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................................. ===========
- --------------- (1) As of June 30, 1998 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 22 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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................................ $2,648 through $21,668 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 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-1 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 S-17 23 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 both the general partner of your partnership and a 95% non-voting interest in the manager of your partnership's property. The general partner of your partnership receives a fee of $2,083 per month from your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $427,385 in 1996, $437,571 in 1997 and $215,708 for the first six months of 1998. 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 Your Partnership and its Property. Casa Del Mar Associates Limited Partnership is a Florida limited partnership which was formed on August 26, 1998 for the purpose of owning and operating an assisted living apartment property located in Boca Raton, Florida, known as "Casa Del Mar." In October, 1988, it completed a private placement of units that raised net proceeds of approximately $7,400,000. Casa Del Mar consists of 214 apartment units. Your partnership has no employees. Property Management. Since July 12, 1996, your partnership's property has been managed by an entity which is now our affiliate. 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 S-18 24 equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2038, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership agreement allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $13,800,862, payable to Mellon Bank MD, which bears interest at the rate of 8.12%. The mortgage debt is due in August 2005. In addition, your partnership had borrowed $1,714,490 (including accrued interest) from an unrelated party on an unsecured basis as of June 30, 1998. The majority of these borrowings bear interest at 9% and are due July 2006. Your partnership agreement also allows your general partner to lend funds to your partnership. As of June 30, 1998, your general partner had outstanding loans (including accrued and unpaid interest) of $5,906,796 to your partnership, which generally bear interest at a rate of 9% and mature in July 2006. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 25 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, 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 26
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 27 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 28
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 29 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 30 SUMMARY FINANCIAL INFORMATION OF CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP The summary financial information of Casa Del Mar Associates Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Casa Del Mar Associates Limited Partnership for the years ended December 31, 1997 and 1996 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 of Your Partnership" included herein. Certain amounts in the December 31, 1996 summary financial information have been reclassified to conform to the other periods presented here. See "Index to Financial Statements." CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
FOR THE SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------------- ------------------------- 1998 1997 1997 1996 ----------- ----------- ----------- ----------- OPERATING DATA: Total revenues.............................................. $ 3,637,897 $ 3,702,572 $ 7,335,827 $ 6,963,188 Net loss.................................................... (242,115) (89,887) (352,461) (398,693) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $16,635,564 $16,604,478 $16,793,217 $16,780,268 Total assets................................................ 17,851,507 17,628,627 17,656,244 17,609,188 Mortgage notes payable...................................... 13,800,862 14,019,912 13,910,041 14,120,604 Notes payable and accrued interest -- related parties....... 5,906,796 5,029,089 5,259,171 5,162,446 Notes payable and accrued interest -- other................. 1,714,490 1,594,875 1,652,243 1,541,382 Partners' Deficit........................................... (4,777,639) (4,272,950) (4,535,524) (4,387,087)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $0
S-25 31 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. 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 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 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. S-26 32 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 Code. 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 therefore 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 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. 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 S-27 33 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25 and the estimated 1998 distributions of $0 with respect to your units, distributions with respect to the Preferred OP Units and Common OP Units to be received in the Offer are expected to be greater, immediately following the 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 S-28 34 AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs. Moody's 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 June 3, 1997, the Company acquired NHP Partners, Inc., a Delaware corporation ("NHP Partners"), and NHP Partners Two Limited Partnership, a Delaware limited partnership ("Partners Two"), each formerly affiliated with NHP Incorporated, a Delaware corporation ("NHP"). As a result of this acquisition, the general partner of your partnership became a subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership. Previously, on May 5, 1997, AIMCO acquired 51.3% of the outstanding common stock of NHP, which manages the property owned by your partnership. On December 8, 1997, AIMCO acquired the remaining 48.7% of the outstanding common stock of NHP and thus owns 100% of the outstanding common stock of NHP. We conducted two prior tender offers for units of your partnership. In August, 1997 we acquired a 0.7576% limited partnership interest in your partnership through the first tender offer. In June 1998, we acquired an additional 0.3788% limited partnership interest in your partnership through the second tender offer. We currently own a 1.1364% limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED One of the reasons AIMCO acquired NHP Partners, Partners Two and NHP was that AIMCO expected to make offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by NHP (the "NHP Partnerships"). Such offers would provide liquidity for the limited partners of the NHP Partnerships. Such offers would also allow the AIMCO Operating Partnership an opportunity to increase its ownership interest in certain NHP Partnerships which would provide a larger asset and capital base and increased diversification. S-29 35 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 has required funding from its partners. Continuation of its operations is dependent on additional funding from partners or from other sources. 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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 S-30 36 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 OP Units rank equal to five 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). Your partnership has not paid any distributions on your units since the inception of your partnership. 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 37 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 38 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998 IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 39 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. 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 S-34 40 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." 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. 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. S-35 41 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, (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 9:00 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 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, Denver, Colorado 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. S-36 42 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-37 43 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 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 S-38 44 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 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 S-39 45 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 indirectly owns a 95% non-voting interest in the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-40 46 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. 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. DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. S-41 47 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 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 S-42 48 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 payment. 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 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 S-43 49 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-44 50 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-45 51 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-46 52 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-47 53 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-48 54 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-49 55 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 56 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-51 57 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 58 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's forecasted annual net operating income of $ for the period from January 1, 1998 to December 31, 1998 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value the value, as of June 30, 1998, 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-53 59 - 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. Forecasted net operating income (January 1, 1998 to December 31, 1998)................................................. $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ Plus: Cash and cash equivalents(1).......................... Plus: Other partnership assets, net of security deposits(1)............................................... Less: Mortgage debt, including accrued interest(1).......... Less: Notes payable, including accrued interest(1).......... Less: Accounts payable and accrued expenses(1).............. Less: Other liabilities(1).................................. 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................................. -----------
- --------------- (1) As of June 30, 1998 - 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 60 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 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, a third party expert, 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 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25 and the estimated 1998 distributions of $0 with respect to your units, distributions with respect to the Preferred OP Units and Common OP Units to be received in the Offer are expected to be greater, immediately following the 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 S-55 61 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................................ $2,648 through $21,668 Estimated Liquidation Proceeds............................ $
S-56 62 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. However, we have made two prior tender offers for units. In the first offer, made in August, 1997, we offered to acquire all units of your partnership at a price of $2,648 per unit in cash. In June, 1998, we offered to acquire all units of your partnership at a price of $21,668 per unit in cash. 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-1 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 "-- Fairness Opinion -- S-57 63 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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 September 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 manage- S-58 64 ment 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 property was 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 S-59 65 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 66 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 Florida law for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Casa Del Mar Apartments. 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 (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 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 develop, market, The purpose of the AIMCO Operating Partnership is to lease, operate, finance, and sell the partnership's conduct any business that may be lawfully conducted by property. Subject to restrictions contained in your a limited partnership organized pursuant to the partnership agreement of limited partnership, your Delaware Revised Uniform Limited Partnership Act (as partnership may perform all acts necessary or amended from time to time, or any successor to such appropriate in connection therewith and reasonably statute) (the "Delaware Limited Partnership Act"), related thereto, including borrowing money, creating provided that such business is to be conducted in a liens and investing funds in financial instruments. 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-61 67 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized The general partner is authorized to issue additional to admit two special limited partners specified in your partnership interests in the AIMCO Operating partnership's agreement of limited partnership, issue Partnership for any partnership purpose from time to additional limited partnership interests in your time to the limited partners and to other persons, and partnership and may admit additional limited partners to admit such other persons as additional limited by selling not less than 86 1/2 units nor more than 100 partners, on terms and conditions and for such capital units for cash and notes to selected persons who contributions as may be established by the general fulfill the requirements set forth in your partner in its sole discretion. The net capital partnership's agreement of limited partnership. The contribution need not be equal for all OP Unitholders. capital contribution need not be equal for all limited No action or consent by the OP Unitholders is required partners and no action or consent is required in in connection with the admission of any additional OP connection with the admission of any additional limited Unitholder. See "Description of OP Units -- Management partners. 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 of your partnership may contract The AIMCO Operating Partnership may lend or contribute with affiliated persons, provided that such contracts funds or other assets to its subsidiaries or other are on commercially reasonable terms in accordance with persons in which it has an equity investment, and such industry custom and as if between unrelated parties persons may borrow funds from the AIMCO Operating negotiating at arms' length. However, the general Partnership, on terms and conditions established in the partner may not grant to itself or any affiliate an sole and absolute discretion of the general partner. To exclusive listing for the sale of your partnership's the extent consistent with the business purpose of the assets nor act for compensation as a finance broker on AIMCO Operating Partnership and the permitted behalf of your partnership. The general partner and its activities of the general partner, the AIMCO Operating affiliates may lend money to your partnership which Partnership may transfer assets to joint ventures, will be repaid with interest at the then prevailing limited liability companies, partnerships, rate for loans of a similar nature. 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, if security is required therefore, restrictions on borrowings, and the general partner has to mortgage or subject any partnership asset or full power and authority to borrow money on behalf of investment to any security device so long as such acts the AIMCO Operating Partnership. The AIMCO Operating are do not violate the terms of any outstanding debt. Partnership has credit agreements that restrict, among Your partnership may not incur any indebtedness wherein other things, its ability to incur indebtedness. See the lender will have or acquire at any time, as a "Risk Factors -- Risks of Significant Indebtedness" in result of making of the loan, any direct or indirect the accompanying Prospectus. interest in the profits, capital or property of your partnership other than as a secured creditor.
S-62 68 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 the limited partners or their designated with a statement of the purpose of such demand and at representative to examine and copy, at such limited such OP Unitholder's own expense, to obtain a current partners' expense, the books of account, all list of the name and last known business, residence or correspondence papers and other documents at the mailing address of the general partner and each other offices of your partnership at all reasonable times. OP Unitholder.
Management Control The general partner of your partnership has control All management powers over the business and affairs of over the day-to-day management of your partnership and the AIMCO Operating Partnership are vested in AIMCO-GP, has the duty and responsibility of providing continuing Inc., which is the general partner. No OP Unitholder administrative and executive support, advice, has any right to participate in or exercise control or consultation, analysis and supervision with respect to management power over the business and affairs of the the functions of your partnership as owner of the AIMCO Operating Partnership. The OP Unitholders have partnership's property. Subject to the limitations the right to vote on certain matters described under under applicable law and the terms and provisions of "Comparison of Ownership of Your Units and AIMCO OP your partnership's agreement of limited partnership, Units -- Voting Rights" below. The general partner may the general partner has the power to do all management not be removed by the OP Unitholders with or without acts by its own signature and has the right, authority, cause. power and duty to carry out the purposes and business of your partnership. The limited partners have no right In addition to the powers granted a general partner of to take part in the control of your partnership a limited partnership under applicable law or that are business or to sign for or to bind your partnership. 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 and its affiliates are the AIMCO Operating Partnership Agreement, the general not liable to your partnership or to any partner for partner is not liable to the AIMCO Operating any loss suffered by your partnership which arises out Partnership for losses sustained, liabilities incurred of any action or inaction of the general partner or its or benefits not derived as a result of errors in affiliates if the general partner or its affiliates, in judgment or mistakes of fact or law of any act or good faith, determined that such course of conduct was omission if the general partner acted in good faith. in the best interest of your partnership and such The AIMCO Operating Partnership Agreement provides for course of conduct did not constitute negligence or indemnification of AIMCO, or any director or officer of misconduct of the general partner or its affiliates. AIMCO (in its capacity as the previous general partner The general partner of your partnership and its of the AIMCO Operating Partnership), the general affiliates are entitled to indemnification from your partner, any officer or director of general partner or partnership against any expense, liability, judgement, the AIMCO Operating Partnership and such other persons loss and amounts paid in settlement of any claims as the general partner may designate from and against sustained by them in connection with your partner- all losses, claims, damages, liabilities, joint or ship, provided that the same were not the result of several, expenses (including legal fees), fines, negligence or misconduct on the part of the general settlements and other amounts incurred in connection partner or its affiliates. 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
S-63 69 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 at affairs of the AIMCO Operating Partnership. The general least 80% of the outstanding Units. A vote of a partner may not be removed as general partner of the majority of the outstanding units is required to elect AIMCO Operating Partnership by the OP Unitholders with a successor general partner. The general partner may or without cause. Under the AIMCO Operating Partnership not voluntarily transfer its general partner interest. Agreement, the general partner may, in its sole A limited partner may not transfer its interests discretion, prevent a transferee of an OP Unit from without first offering the general partner the option becoming a substituted limited partner pursuant to the to purchase such interests on the terms of the offer AIMCO Operating Partnership Agreement. The general received by the limited 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 if such amendment is in the AIMCO Operating Partnership Agreement, whereby solely for the purpose of clarification and does not the general partner may, without the consent of the OP change the substance thereof, is for the purpose of Unitholders, amend the AIMCO Operating Partnership substituting limited partners or is required by law. Agreement, amendments to the AIMCO Operating All other amendments must be approved by the all Partnership Agreement require the consent of the limited partners. holders of a majority of the outstanding Common OP Units, excluding AIMCO and certain other limited exclusions (a "Majority in Interest"). Amendments to the AIMCO Operating Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives $2,083 per month, payable on the 10th of each capacity as general partner of the AIMCO Operating month, as compensation for the management of your Partnership. In addition, the AIMCO Operating Part- partnership. Moreover, upon the occurrence of certain nership is responsible for all expenses incurred events, the general partner or certain affiliates may relating to the AIMCO Operating Partnership's ownership be entitled to compensation for services rendered in of its assets and the operation of the AIMCO Operating connection with such transactions. 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-64 70 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, the liability of the limited partners in negligence, no OP Unitholder has personal liability for all respects is limited to the capital contributions the AIMCO Operating Partnership's debts and paid or to be paid by such limited partners under the obligations, and liability of the OP Unitholders for provisions of your partnership's agreement of limited the AIMCO Operating Partnership's debts and obligations partnership, except as required by applicable law and is generally limited to the amount of their invest- certain additional capital contributions required by ment in the AIMCO Operating Partnership. However, the limited partners in certain circumstances as set forth limitations on the liability of limited partners for in your partnership's agreement of limited 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 The general partner has the fiduciary responsibility Unless otherwise provided for in the relevant for the safekeeping and use of all funds and assets of partnership agreement, Delaware law generally requires your partnership. Your partnership's agreement of a general partner of a Delaware limited partnership to limited partnership provides that the general partner adhere to fiduciary duty standards under which it owes and its affiliates are not required to devote their its limited partners the highest duties of good faith, full time to the conduct of the affairs of your fairness and loyalty and which generally prohibit such partnership, but are required to use their best efforts general partner from taking any action or engaging in in carrying out and implementing the purposes of your any transaction as to which it has a conflict of partnership and to devote to the conduct of the affairs interest. The AIMCO Operating Partnership Agreement of your partnership such time and activity as they, in expressly authorizes the general partner to enter into, their discretion, deem reasonably necessary therefor. on behalf of the AIMCO Operating Partnership, a right Once the partnership's property is at a 90% occupancy of first opportunity arrangement and other conflict rate, the general partner may construct and develop any avoidance agreements with various affiliates of the new adult congregate living facility in the market area AIMCO Operating Partnership and the general partner, on of the partnership's property. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 71 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, the limited applicable law or in the AIMCO ship Agreement, the OP Unitholders partners owning a majority of the Operating Partnership Agreement, have voting rights only with outstanding units may alter the the holders of the Preferred OP respect to certain limited matters primary purpose of your Units will have the same voting such as certain amendments and partnership, elect a successor rights as holders of the Common OP termination of the AIMCO Operating general partner to replace a Units. See "Description of OP Partnership Agreement and certain removed general partner and approve Units" in the accompanying transactions such as the or disapprove the sale of the Prospectus. So long as any institution of bankruptcy partnership's property made during Preferred OP Units are outstand- proceedings, an assignment for the the time period specified in your ing, in addition to any other vote benefit of creditors and certain partnership's agreement or pursuant or consent of partners required by transfers by the general partner of to the general partner's right of law or by the AIMCO Operating its interest in the AIMCO Operating first refusal in Partnership Agree- Part-
S-66 72 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain circumstances. The approval ment, the affirmative vote or nership or the admission of a of the limited partners owning at consent of holders of at least 50% successor general partner. least 80% of the units is required of the outstanding Preferred OP to remove the general partner for Units will be necessary for Under the AIMCO Operating Partner- misconduct and also to dissolve effecting any amendment of any of ship Agreement, the general partner your partnership upon such mis- the provisions of the Partnership has the power to effect the conduct. The consent of all limited Unit Designation of the Preferred acquisition, sale, transfer, partners is required for your OP Units that materially and exchange or other disposition of partnership to engage in business adversely affects the rights or any assets of the AIMCO Operating other than that set forth in your preferences of the holders of the Partnership (including, but not partnership's agreement of limited Preferred OP Units. The creation or limited to, the exercise or grant partnership and to amend 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, subject to certain without limitation, any partner- any other right available in exceptions. ship units that may have rights connection with any assets at any senior or superior to the Preferred time held by the AIMCO Operating A general partner may cause the OP Units, shall not be deemed to Partnership) or the merger, dissolution of your partnership if materially adversely affect the consolidation, reorganization or it is unable to serve in such rights or preferences of the other combination of the AIMCO capacity. However, your partnership holders of Preferred OP Units. With Operating Partnership with or into may continue if the limited respect to the exercise of the another entity, all without the partners holding a majority of the above described voting rights, each consent of the OP Unitholders. units choose to do so and elect a Preferred OP Units shall have one new general partner within 120 days (1) vote per Preferred OP Unit. The general partner may cause the of such dissolution. 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 Flow (as $ per Preferred OP Unit; tribute quarterly all, or such defined in your partnership's provided, however, that at any time portion as the general partner may agreement of limited partnership) and from time to time on or after in its sole and absolute discretion are to be distributed periodically, the fifth anniversary of the issue determine, of Available Cash (as but no less frequently than date of the Preferred OP Units, the defined in the AIMCO Operating annually. The distributions payable AIMCO Operating Partnership may Partnership Agreement) generated by to the partners are not fixed in adjust the annual distribution rate the AIMCO Operating Partnership 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. Your of five years, and (ii) the annual established by the general partner partnership has not made any dividend rate on the most recently with respect to such quarter, in distributions in the past and is issued AIMCO non-convertible accordance with their respective not projecting to make any preferred stock which ranks on a interests in the AIMCO Operating distributions in 1998. No limited parity with its Class H Cumu- Partnership on such record date. partner has priority over any other Holders of any other Pre- limited partner in respect to distributions.
S-67 73 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 The general partner may, in its There is no public market for the There is no public market for the discretion, transfer all of the Preferred OP Units and the OP Units. The AIMCO Operating Part- units in lieu of a transfer of all Preferred OP Units are not listed nership Agreement restricts the of the assets of your partnership on any securities exchange. The transferability of the OP Units. in the event of a sale in Preferred OP Units are subject to Until the expiration of one year accordance with the terms of your restrictions on transfer as set from the date on which an OP partnership. Upon receiving an forth in the AIMCO Operating Unitholder acquired OP Units, offer to purchase units held by a Partnership Agreement. subject to certain exceptions, such limited partner, such limited OP Unitholder may not transfer all partner must first offer to sell Pursuant to the AIMCO Operating or any portion of its OP Units to such units to the general partner Partnership Agreement, until the any transferee without the consent for a period of fifteen day period expiration of one year from the of the general partner, which on the same terms as the offer date on which a holder of Preferred consent may be withheld in its sole received. If the general partner OP Units acquired Preferred OP and absolute discretion. After the does not exercise the right to Units, subject to certain expiration of one year, such OP purchase such units, the limited exceptions, such holder of Unitholder has the right to partner may accept the offer and Preferred OP Units may not transfer transfer all or any portion of its transfer such units to the all or any portion of its Pre- OP Units to any person, subject to transferee. A transferee may become ferred OP Units to any transferee the satisfaction of certain a substitute limited partner, if: without the consent of the general conditions specified in the AIMCO (1) the transferee is not a minor, partner, which consent may be Operating Partnership Agreement, an incompetent, a nonresident alien withheld in its sole and absolute including the general partner's or foreign partnership, (2) such discretion. After the expiration of right of first refusal. See transfer will not result in the one year, such holders of Preferred "Description of OP Units -- dissolution of your partnership for OP Units has the right to transfer Transfers and Withdrawals" in the tax purposes, (3) such transfer all or any portion of its Preferred accompanying Prospectus. does not violate applicable OP Units to any person, subject to securities laws, (4) the general the satisfaction of partner approves, which
S-68 74 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS approval may be withheld for any certain conditions specified in the After the first anniversary of reason, (5) the transferee agrees AIMCO Operating Partnership Agree- becoming a holder of Common OP to be bound by your partnership's ment, including the general Units, an OP Unitholder has the agreement of limited partnership partner's right of first refusal. right, subject to the terms and and (6) the transferee reimburses conditions of the AIMCO Operating your partnership for any costs in- After a one-year holding period, a Partnership Agreement, to require curred in connection with the holder may redeem Preferred OP the AIMCO Operating Partnership to transaction. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 75 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a subsidiary of AIMCO in June, 1997, when AIMCO acquired NHP. 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's 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 own the general partner of your partnership and a 95% non-voting interest in the manager of your partnership's property. The general partner of your partnership receives a fee of $2,083 per month for its services as general partner from your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $427,385 in 1996, $437,571 in 1997 and $215,708 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's 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'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 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. We conducted two prior tender offers for units of your partnership. In August, 1997 we acquired a 0.7576% interest in your partnership through the first tender offer. In June 1998, we acquired an additional 0.3788% interest in your partnership through the second tender offer. 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-70 76 YOUR PARTNERSHIP GENERAL Casa Del Mar Associates Limited Partnership is a Florida limited partnership which raised net proceeds of approximately $7,400,000 in 1988 through a private offering. The promoter for the private offering of your partnership was Stephen A. Goldberg. NHP acquired your partnership in July 1996. AIMCO acquired NHP in June, 1997. There are currently a total of 77 limited partners of your partnership and a total of 99 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on August 26, 1988 for the purpose of owning and operating an assisted living apartment property located in Boca Raton, Florida, known as "Casa Del Mar." Your partnership's property consists of 214 apartment units. There are 141 one-bedroom apartments and 73 two-bedroom apartments. Assisted living services are provided in 60 units and 154 units provide independent living. The total rentable square footage of your partnership's property is 168,832 square feet. Your partnership's property had an average occupancy rate of approximately 96% in 1997 and 92% during the first six months of 1998. The average annual rent per apartment unit is approximately $35,520. Your partnership's property provides residents with a number of amenities and services. Each apartment is equipped with a washer and dryer. There are emergency pull cords in every apartment and there is a courtesy security patrol from 5pm - 8am every day. Your partnership's property provides transportation to doctor's appointments within a 5-mile radius of the property. Group bus trips to banks, shopping, and entertainment activities take place on pre-announced schedules. Meal service is available three times per day in addition to a snack/sandwich shop. Five course dinners are offered nightly with fourteen entree choices. Activities include billiards, fitness programs with a certified trainer, movies, swimming pool, spa, movies, lectures and live entertainment in the property's auditorium. Preferred Home Health, an affiliate of AIMCO, is a home health care agency with an office on site. PROPERTY MANAGEMENT Since 1997, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $427,385, $437,571 and $215,708, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2038 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. S-71 77 An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $13,800,862, payable to Mellon Bank MD, which bears interest at the rate of 8.12%. The mortgage debt is due in August 2005. In addition, your partnership had borrowed $1,714,490 (including accrued interest) from an unrelated party on an unsecured basis as of June 30, 1998. The majority of these borrowings bear interest at 9% and are due July 2006. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. As of June 30, 1998, the general partner of your partnership had outstanding loans (including accrued and unpaid interest) of $5,906,796 to your partnership, which generally bear interest at a rate of 9% and mature in July 2006. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. The 1996 financial statements have been audited by Arthur Andersen LLP and the 1997 financial statements have been audited by Ernst & Young LLP. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 78 Below is selected financial information for Casa Del Mar Associates Limited Partnership taken from the financial statements described above. Certain amounts in the 1996 financial statements have been reclassified to conform to the June 30, 1998, June 30, 1997 and December 31, 1997 presentations. See "Index to Financial Statements."
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP ----------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------- 1998 1997 1997 1996 ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) BALANCE SHEET DATA Real estate, net of accumulated depreciation.......... $16,635,564 $16,604,478 $16,793,217 $16,780,268 Cash and cash equivalents............................. 184,927 41,820 32,413 43,412 Receivables........................................... 42,630 15,065 32,102 17,079 Tenant security deposits.............................. 107,054 73,253 106,406 70,783 Escrow deposits....................................... 531,773 516,145 335,162 320,590 Deferred costs, net................................... 254,235 288,133 271,184 305,082 Other assets.......................................... 95,324 89,733 85,760 71,974 ----------- ----------- ----------- ----------- Total Assets................................ $17,851,507 $17,628,627 $17,656,244 $17,609,188 =========== =========== =========== =========== LIABILITIES AND PARTNERS' DEFICIT Mortgage Note payable................................. $13,800,862 $14,019,912 $13,910,041 $14,120,604 Notes payable and accrued interest to related parties............................................. 5,906,796 5,029,089 5,259,171 5,162,446 Notes and accrued interest -- other................... 1,714,490 1,594,875 1,652,243 1,541,382 Tenant security deposits.............................. 537,902 536,123 557,395 584,373 Accounts payable and accrued expenses................. 280,418 413,535 486,989 262,056 Accounts payable -- affiliates........................ 217,643 74,310 145,857 75,277 Accrued interest payable.............................. 93,386 94,834 94,125 95,515 Unearned rent......................................... -- -- 8,210 15,678 Other liabilities..................................... 77,649 138,899 77,737 138,944 ----------- ----------- ----------- ----------- 22,629,146 21,901,577 22,191,768 21,996,275 Partners' Deficit..................................... (4,777,639) (4,272,950) (4,535,524) (4,387,087) ----------- ----------- ----------- ----------- Total Liabilities and Partners' Deficit..... $17,851,507 $17,628,627 $17,656,244 $17,609,188 =========== =========== =========== ===========
S-73 79
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP --------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- ----------------------- 1998 1997 1997 1996 ----------- ----------- ---------- ---------- (UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) Revenues: Rental Income.......................................... $3,462,716 $3,497,182 $6,958,953 $6,685,843 Other Income........................................... 170,907 202,747 370,584 275,686 ---------- ---------- ---------- ---------- Subtotal....................................... 3,633,623 3,699,929 7,329,537 6,961,529 Interest Income.......................................... 4,274 2,643 6,290 1,659 ---------- ---------- ---------- ---------- 3,637,897 3,702,572 7,335,827 6,963,188 Expenses: Payroll and related expenses........................... 1,156,225 1,098,446 2,226,739 2,169,722 Utilities.............................................. 123,311 130,435 257,735 266,593 Repairs and maintenance................................ 249,526 206,028 439,006 460,680 Advertising............................................ 79,936 12,290 120,584 17,218 Real estate and personal property taxes................ 156,960 155,220 298,946 295,661 Insurance.............................................. 20,235 17,190 47,241 68,867 Health center expenses................................. 370,393 414,924 873,779 833,260 ---------- ---------- ---------- ---------- Subtotal....................................... 2,156,586 2,034,533 4,264,030 4,112,001 General and administrative............................... 138,306 177,149 293,600 270,143 Management fees.......................................... 215,708 222,929 437,571 427,385 Interest................................................. 905,975 894,580 1,762,404 1,824,452 Depreciation and amortization............................ 463,437 463,268 930,683 1,078,157 ---------- ---------- ---------- ---------- 3,880,012 3,792,459 7,688,288 7,712,138 ---------- ---------- ---------- ---------- Loss before extraordinary item........................... (242,115) (89,887) (352,461) (748,950) Extraordinary item -- gain on restructuring of debt...... -- -- -- 350,257 ---------- ---------- ---------- ---------- Net Loss....................................... $ (242,115) $ (89,887) $ (352,461) $ (398,693) ========== ========== ========== ==========
\ S-74 80 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited and unaudited financial statements included elsewhere herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Loss Your partnership recognized net loss of $242,115 for the six months ended June 30, 1998, compared to net loss of $89,887 for the six months ended June 30, 1997. The increased net loss of $152,228, or 169%, was primarily due to decreased rental and other property revenues and increased operating expenses and general administrative expenses discussed below. Revenues Rental and other property revenues of your partnership totaled $3,633,623 for the six months ended June 30, 1998, compared to $3,699,929 for the six months ended June 30, 1997, a decrease of $66,306, or 2%. This decline was related to higher vacancy rates during 1998 than 1997. Expenses Operating expenses of your partnership, consisting of utilities (net of reimbursements received from tenants), contract services, payroll, turnover costs, repairs and maintenance, advertising and marketing, property taxes, insurance and health center expenses, totaled $2,156,586 for the six months ended June 30, 1998, compared to $2,034,533 for the six months ended June 30, 1997, an increase of $122,053, or 6%. This increase was due to higher payroll and related expenses, repairs and maintenance costs and advertising costs, which were somewhat offset by reduced health center expenses, during 1998. 401(k) eligibility requirements changed when AIMCO purchased the general partner and the property manager from NHP in 1997. As a result, the number of eligible employees increased resulting in higher payroll expenses. During 1998, a new advertising agency was hired to develop a marketing strategy to improve occupancy. 1998 repairs and maintenance increased over the prior period due to repairs related to the kitchen located on the premises, as well as cost associated with the turnover of vacant units. In March 1998, AIMCO contracted with a new food service to provide a lower cost food service program. As a result, health center expenses decreased in 1998 by $44,531. Your partnership's management expenses totaled $215,708 for the six months ended June 30, 1998, compared to $222,929 for the six months ended June 30, 1997, a decrease of $7,221, or 3%. Management fees are based on 6% of collected revenues, which decreased in 1998. General and Administrative Expenses General and administrative expenses decreased to $138,306 for the six months ended June 30, 1998 from $177,149 for the six months ended June 30, 1997, a decrease of $38,843, or 22%. This was primarily due to recruiting expense of $27,117 incurred in 1997, but not in 1998. Interest Expense Interest expense totaled $905,975 for the six months ended June 30, 1998, compared to $894,580 for the six months ended June 30, 1997, an increase of $11,395 or 1%. S-75 81 Interest Income Interest income totaled $4,274 for the six months ended June 30, 1998, compared to $2,643 for the six months ended June 30, 1997, an increase of $1,631 or 62%. This increase was related to interest income earned on operating funds. Comparison of the year ended December 31, 1997 to the year ended December 31, 1996 Net Loss Your partnership recognized loss before extraordinary item of $352,461 for the year ended December 31, 1997, compared to loss before extraordinary item of $748,950 for the year ended December 31, 1996. The decrease in loss before extraordinary item of $396,489, or 53%, was primarily due to increased rental and other property revenues in 1997. Your partnership recognized net loss of $352,461 for the year December 31, 1997, compared to net loss of $398,693 for the year ended December 31, 1996, a decrease in net loss of $46,232, or 12%. The reasons for these variances are discussed below. Revenues Rental and other property revenues of your partnership totaled $7,329,537 for the year ended December 31, 1997, compared to $6,961,529 for the year ended December 31, 1996, an increase of $368,008, or 5%. This increase was primarily a result of an increase in 1997 average rental rates. Expenses Operating expenses of your partnership, consisting of, utilities (net of reimbursement received from tenants), contract services, payroll, turnover costs, repairs and maintenance, advertising and marketing, property taxes, insurance and health center expenses, totaled $4,264,030 for the year ended December 31, 1997, compared to $4,112,001 for the year ended December 31, 1996, an increase of $152,029, or 4%. 401(k) eligibility requirements changed when NHP purchased the general partner of your partnership and assumed management of your partnership in July 1996. As a result, the number of eligible employees increased resulting in increased payroll expenses of $57,017. An accelerated marketing strategy was implemented to reduce vacancies in late 1997, resulting in an increase in advertising expenses of $103,366. Management expenses totaled $437,571 for the year December 31, 1997, compared to $427,385 for the year ended December 31, 1996, an increase of $10,186, or 2%. Depreciation and amortization totaled $930,683 in 1997 compared to $1,078,157 in 1996, a decrease of $147,474 or 14%. This decrease in depreciation and amortization was due to numerous assets becoming fully depreciated during 1997. General and Administrative Expenses General and administrative expenses increased to $293,600 for the year ended December 31, 1997 from $270,143 for the year ended December 31, 1996, an increase of $23,457, or 9%. This was due primarily to recruiting expense of $27,117 incurred in 1997, but not in 1996. Interest Expense Interest expense totaled $1,762,404 for the year ended December 31, 1997, compared to $1,824,452 for the year ended December 31, 1996, a decrease of $62,048 or 3%. This decrease in interest expense was due to the forgiveness of debt of $452,369 and the reduction of the interest rates charged on your partnership's notes payable to related parties and notes payable to others from 13% to 9% per annum. Interest Income Interest income totaled $6,290 for the year ended December 31, 1997, compared to $1,659 for the year ended December 31, 1996, an increase of $4,631, or 279%. This increase is related to interest earned on operating funds. S-76 82 Liquidity and Capital Resources Your partnership has periodically required loans from the partners to cover cash flow deficiencies; however, the partners are not obligated to provide additional funds to cover further cash flow deficiencies. Accordingly, your partnership's ability to continue operating in its present form is dependent upon its ability to generate sufficient cash flow from operations to fund necessary capital improvements, debt service and other cash flow needs that may arise or to arrange for further loans from partners or other sources. 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's agreement of limited partnership provides that neither the general partner of your partnership nor any of its affiliates performing services on behalf of your partnership will be liable to your partnership or any of the offerees for any act or omission by any such person if such person, in good faith, determined that such course of conduct was in the best interests of your partnership, provided that such act or omission did not constitute misconduct or negligence on the part of such person. As a result, offerees 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 owned by AIMCO. See "Conflicts of Interest". Your Partnership Agreement also provides that the general partner of your partnership and certain related parties are indemnified from losses, judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by them in connection with your partnership (except to the extent indemnification is prohibited by law) provided that the course of conduct did not constitute negligence or misconduct on the part of the general partner or its affiliates. Notwithstanding the foregoing, none of the above-mentioned persons is to be indemnified by your partnership from liability, loss, damage, cost or expense incurred by him in connection with any claim involving allegations that such person violated Federal or state securities laws unless (a) there has been a successful adjudication on the merits of the claims of each count involving alleged securities law violations as to the person seeking indemnification, (b) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction, or (c) a court of competent jurisdiction has approved a settlement of the claims against the person seeking indemnification. In each of the foregoing situations, the court of law considering the request for indemnification must be advised as to the position of the SEC and any other applicable regulatory authority regarding indemnification for violations of securities laws. Indemnification may not be enforceable as to certain liabilities arising from claims under the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder and state securities laws; and, in the opinion of the SEC, such indemnification is contrary to the public policy and is therefore unenforceable. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership does not pay for any insurance, other than public liability insurance, covering liability of the general partner of your partnership or any other indemnified person for acts or omissions for which indemnification is not permitted by your partnership's Agreement. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions Your partnership has not made any distributions in the past five years. The original cost per unit was $74,000. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the S-77 83 admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1996......................... 0.0 0.00% 0 1997......................... 1.0 0.76% 1 1998 (through June 30)....... 0.5 0.38% 1
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP In August, 1997 we acquired 0.7576% interest in your partnership through a prior tender offer. In June 1998, we acquired an additional 0.3788% interest in your partnership through another tender offer. Other than the units owned as a result of these prior tender offers, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1996........................................................ $24,996 1997........................................................ $$24,996 1998 (through June 30)...................................... $12,498
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1996........................................... $427,385 1997........................................... $437,571 1998 (through June 30)......................... $215,708
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 company paid to the property manager or AIMCO and its affiliates. S-78 84 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 audited financial statements of Casa Del Mar Associates Limited Partnership at December 31, 1997 and for the year then ended, appearing in this Prospectus Supplement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The audited financial statements of Casa Del Mar Associates Limited Partnership at December 31, 1996 and for the year then ended, appearing in this Prospectus Supplement have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report thereon appearing elsewhere herein, and are included herein in reliance upon the authority of such firm as experts in accounting and auditing in giving said reports. S-79 85 INDEX TO FINANCIAL STATEMENTS FINANCIAL STATEMENTS OF CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP
PAGE ---- Report of Independent Auditors.............................. F-2 Statements of Operations for six months ended June 30, 1998 (Unaudited) and 1997 (Unaudited) and the year ended December 31, 1997......................................... F-3 Balance Sheets as of June 30, 1998 (Unaudited) and December 31, 1997.................................................. F-4 Statements of Partners' Capital Deficit for the year ended December 31, 1997 and the six months ended June 30, 1998 (Unaudited)............................................... F-5 Statements of Cash Flows for the six months ended June 30, 1998 (Unaudited) and 1997 (Unaudited) and the year ended December 31, 1997......................................... F-6 Notes to Financial Statements............................... F-7 Report of Independent Public Accountants.................... F-10 Balance Sheet as of December 31, 1996....................... F-11 Statement of Operations for the year ended December 31, 1996...................................................... F-12 Statement of Changes in Partners' Deficit for the year ended December 31, 1996......................................... F-13 Statement of Cash Flows for the year ended December 31, 1996...................................................... F-14 Notes to Financial Statements............................... F-15
F-1 86 REPORT OF INDEPENDENT AUDITORS To the Partners Casa Del Mar Associates Limited Partnership We have audited the accompanying balance sheet of Casa Del Mar Associates Limited Partnership, a limited partnership, as of December 31, 1997, and the related statements of operations, partners' capital deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Casa Del Mar Associates Limited Partnership at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in Note 3 to the financial statements, the Partnership's recurring deficiencies in cash flow raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ ERNST & YOUNG LLP ------------------------------------ ERNST & YOUNG LLP Indianapolis, Indiana March 20, 1998 F-2 87 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS
SIX MONTHS ENDED ------------------------- YEAR ENDED JUNE 30, JUNE 30, DECEMBER 31, 1998 1997 1997 ----------- ----------- ------------ (UNAUDITED) (UNAUDITED) REVENUES Rental income.......................................... $3,462,716 $3,497,182 $6,958,953 Interest income........................................ 4,274 2,643 6,290 Other income........................................... 170,907 202,747 370,584 ---------- ---------- ---------- 3,637,897 3,702,572 7,335,827 EXPENSES Payroll and related expenses........................... 1,156,225 1,098,446 2,226,739 Utilities.............................................. 123,311 130,435 257,735 Repairs and maintenance................................ 249,526 206,028 439,006 Advertising............................................ 79,936 12,290 120,584 Real estate and personal property taxes................ 156,960 155,220 298,946 Insurance.............................................. 20,235 17,190 47,241 General and administrative............................. 138,306 177,149 293,600 Management fees........................................ 215,708 222,929 437,571 Health center expenses................................. 370,393 414,924 873,779 Interest............................................... 905,975 894,580 1,762,404 Depreciation and amortization.......................... 463,437 463,268 930,683 ---------- ---------- ---------- 3,880,012 3,792,459 7,688,288 ---------- ---------- ---------- Net loss..................................... $ (242,115) $ (89,887) $ (352,461) ========== ========== ==========
See accompanying notes. F-3 88 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP BALANCE SHEETS ASSETS
JUNE 30, DECEMBER 31, 1998 1997 ----------- ------------ (UNAUDITED) Real Estate Land...................................................... $ 4,564,484 $ 4,564,484 Buildings and improvements................................ 16,448,785 16,159,949 Furniture, fixture and equipment.......................... 3,661,852 3,661,852 ----------- ----------- 24,675,121 24,386,285 Less accumulated depreciation............................. 8,039,557 7,593,068 ----------- ----------- 16,635,564 16,793,217 Cash and cash equivalents................................... 184,927 32,413 Receivables from tenants, net of allowance.................. 35,580 28,052 Receivables -- other........................................ 4,050 4,050 Tenant security deposits.................................... 107,054 106,406 Escrow deposits............................................. 531,773 335,162 Deferred costs, net......................................... 254,235 271,184 Other assets................................................ 95,324 85,760 ----------- ----------- Total assets...................................... $17,851,507 $17,656,244 =========== =========== LIABILITIES AND PARTNERS' CAPITAL DEFICIT Mortgage note payable....................................... $13,800,862 $13,910,041 Notes and accrued interest payable.......................... 1,714,490 1,652,243 Notes payable and accrued interest to related parties....... 5,906,796 5,259,171 Tenant security deposits.................................... 537,902 557,395 Accounts payable and accrued expenses....................... 123,458 486,989 Accounts payable -- affiliates.............................. 217,643 145,857 Accrued mortgage interest payable........................... 93,386 94,125 Unearned rent............................................... -- 8,210 Accrued real estate taxes................................... 156,960 -- Other liabilities........................................... 77,649 77,737 ----------- ----------- 22,629,146 22,191,768 Partners' capital deficit................................... (4,777,639) (4,535,524) ----------- ----------- Total liabilities and partners' capital deficit... $17,851,507 $17,656,244 =========== ===========
See accompanying notes F-4 89 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL DEFICIT YEAR ENDED DECEMBER 31, 1997 AND SIX MONTHS ENDED JUNE 30, 1998
SPECIAL PREFERRED GENERAL LIMITED LIMITED PARTNER PARTNER PARTNER TOTAL --------- ----------- ----------- ----------- Partners' capital deficit at January 1, 1997 (Note 2)........................................... $(473,533) $(2,040,919) $(1,668,611) $(4,183,063) Net loss............................................. (19,385) (68,730) (264,346) (352,461) --------- ----------- ----------- ----------- Partners' capital deficit at December 31, 1997....... $(492,918) $(2,109,649) $(1,932,957) $(4,535,524) Net loss (unaudited)................................. (13,280) (47,083) (181,090) (241,453) --------- ----------- ----------- ----------- Partners' capital deficit at June 30, 1998 (unaudited)........................................ $(506,198) $(2,156,732) $(2,114,047) $(4,776,977) ========= =========== =========== ===========
See accompanying notes. F-5 90 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED ------------------------- YEAR ENDED JUNE 30, JUNE 30, DECEMBER 31, 1998 1997 1997 ----------- ----------- ------------ (UNAUDITED) (UNAUDITED) CASH FLOW FROM OPERATING ACTIVITIES Revenue Rental income............................................. $ 3,443,978 $ 3,483,518 $ 6,938,914 Interest.................................................. 4,274 2,643 6,290 Other..................................................... 170,907 202,747 370,584 ----------- ----------- ----------- 3,619,159 3,688,908 7,315,788 Expenses Payroll and related expenses.............................. (1,244,955) (1,098,447) (2,049,914) Utilities................................................. (123,311) (130,435) (257,735) Repairs and maintenance................................... (417,405) (209,789) (412,210) Advertising............................................... (79,936) (12,290) (120,584) Real estate and personal property taxes................... -- -- (298,946) Insurance................................................. (29,798) (34,949) (69,628) General and administrative................................ (173,941) (177,149) (293,601) Management fee............................................ (168,241) (223,897) (332,082) Health center............................................. (417,338) (414,924) (865,178) Interest.................................................. (587,292) (883,647) (1,499,000) Investor service fee...................................... -- -- (10,415) ----------- ----------- ----------- (3,242,217) (3,185,527) (6,209,293) ----------- ----------- ----------- Net cash provided by operating activities.......... 376,942 503,381 1,106,495 CASH FLOW FROM INVESTING ACTIVITIES Tenant security deposits (asset)............................ (648) (56,729) (89,881) Funding of escrow deposits.................................. (26,750) (24,075) (49,933) Escrow deposits, other...................................... (169,861) (117,221) 89,620 Real estate additions....................................... (288,836) (66,505) (705,710) Sundry...................................................... (112) (23) (44,443) ----------- ----------- ----------- Net cash used in investing activities.............. (486,207) (264,553) (800,347) CASH FLOW FROM FINANCING ACTIVITIES Tenant security deposits (liability)........................ (19,493) (48,250) (26,978) Mortgage principal payments................................. (109,179) (100,692) (210,563) Advances on notes payable to related parties................ 442,237 -- 44,118 Repayments on note payable to related parties............... (51,786) (91,478) (81,627) Repayments on notes payable................................. -- -- (19,700) Sundry...................................................... -- -- (22,397) ----------- ----------- ----------- Net cash used in financing activities.............. 261,779 (240,420) 317,147 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents........ 152,514 (1,592) (10,999) Cash and cash equivalents at beginning of year.............. 32,413 43,412 43,412 ----------- ----------- ----------- Cash and cash equivalents at end of year.................... $ 184,927 $ 41,820 $ 32,413 ----------- ----------- ----------- RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net loss.................................................... $ (241,453) $ (89,887) $ (352,461) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization............................. 463,437 463,268 930,683 Changes in operating assets and liabilities Receivable from tenants................................. (10,528) 2,014 (12,571) Other assets............................................ (9,563) (17,759) (13,786) Accounts payable and accrued expenses................... (291,722) (4,730) 298,694 Accrued mortgage interest payable....................... (739) (54,231) (54,941) Accrued interest on notes payable....................... 71,906 120,222 133,890 Accrued interest on notes payable to related parties.... 247,516 (55,058) 184,455 Accrued real estate taxes............................... 156,960 155,220 -- Unearned rent........................................... (8,210) (15,678) (7,468) ----------- ----------- ----------- Net cash provided by operating activities.......... $ 377,604 $ 503,381 $ 1,106,495 =========== =========== ===========
See accompanying notes. F-6 91 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Casa Del Mar Associates Limited Partnership (the "Partnership") was formed as a limited partnership under the laws of the state of Florida on August 26, 1988, to own and operate a senior living community consisting of a 154 unit retirement center of individual apartments and a 60 unit personal care facility for individuals requiring some additional assistance with the activities of daily living. The community is known as Casa Del Mar located in Palm Beach County, Florida. Allocations of cash distributions and net income and losses are made in accordance with the Partnership Agreement. Real estate is recorded on the basis of cost and represents collateral for the mortgage note payable. Depreciation is computed generally by the straight-line method over the estimated useful lives of the related assets. Cash equivalents are defined as short-term, highly liquid investments with original maturities of three months or less. The affiliated management company maintains cash concentration accounts on behalf of affiliated entities which are included in cash and cash equivalents. Deferred costs consist primarily of financing fees which are amortized over the related term of the note. No provision has been made for income taxes or related credits, as the results of operations are includable in the tax returns of the partners. Preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying unaudited financial statements of the Partnership as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. NOTE 2 -- PARTNERS' CAPITAL DEFICIT ADJUSTMENT Partners' capital deficit as of January 1, 1997 has been restated for the overstatement of depreciation expense in prior years. The following is a restatement of partners' capital deficit at January 1, 1997: January 1, 1997 partners' capital deficit, as previously reported.................................................. $(4,387,087) Restatement................................................. 204,024 ----------- January 1, 1997 partners' capital deficit, as restated...... $(4,183,063) ===========
NOTE 3 -- GOING CONCERN The partnership has incurred deficiencies in cash flow which have been funded by notes from the partners; however, the partners are not obligated to provide additional funds to cover future deficiencies in F-7 92 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) cash flow. Continuation of the partnership operations in the present form is dependent upon its ability to achieve cash flow, the partners providing additional notes or obtaining other funds. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. NOTE 4 -- MORTGAGE NOTE PAYABLE The mortgage note payable is due in monthly installments of $112,016, including interest at 8.12% through August 1, 2005. The monthly payment is based on a 25 year amortization with a final payment due of $11,669,929. The mortgage may be prepaid with the payment of a fee as outlined in the note agreement. Maturities for the next five years are as follows: 1998..................................................... $222,867 1999..................................................... 241,653 2000..................................................... 262,022 2001..................................................... 284,108 2002..................................................... 308,056
NOTE 5 -- NOTES PAYABLE AND ACCRUED INTEREST The notes payable are unsecured and summarized as follows: Note payable to prior partner, due 2006, interest rate of 9%, principal and interest due monthly to the extent of net cash flow, as defined................................. $1,428,000 Note payable for equipment purchase, payable in monthly installments of $1,199 through October 1999, interest rate of 11.01%................................................. 20,766 Note payable for equipment purchase, payable in monthly installments of $901 through November 1999, interest rate of 13.51%................................................. 16,037 ---------- 1,464,803 Accrued interest............................................ 187,440 ---------- $1,652,243 ==========
Aggregate maturities for 1998 and 1999 are $21,293 and $15,510, respectively. NOTE 6 -- NOTES PAYABLE AND ACCRUED INTEREST TO RELATED PARTIES The notes payable are unsecured and summarized as follows: Note payable to an affiliate of a general partner, due July 12, 2006, interest rate of 9%, principal and interest due monthly to the extent of net cash flow, as defined........ $5,026,373 Note payable to partner, payable from operations, interest rate of Prime +2%......................................... 44,118 ---------- $5,070,491 ========== Accrued interest............................................ 188,680 ---------- $5,259,171 ==========
NOTE 7 -- RELATED PARTY TRANSACTIONS NHP Florida Management Co., Inc., the managing agent, is an indirectly owned subsidiary of Apartment Investment and Management Company ("AIMCO"). Personnel working at the project are employees of affiliates of AIMCO. The Partnership reimburses the affiliates for the actual salaries and related benefits, as F-8 93 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) reflected in the accompanying financial statements. Following are the related party transactions for the described services provided to the project:
AMOUNT ------ NHP Florida Management Co., Inc.: Management fee............................................ $437,571 Partners: Investor Service Fee...................................... 24,996 AIMCO and/or its affiliates: Insurance policy and claims administration and loss control................................................ 7,666 Group purchasing organization fee for vendor discounts.... 1,541 Interest Expense.......................................... 133,890
One-third of the monthly management fee is subordinated and payable on January 10 of the following year. At December 31, 1997, the subordinated management fee was $145,857 and is included in accounts payable -- affiliates on the balance sheet. F-9 94 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Casa Del Mar Associates Limited Partnership: We have audited the accompanying balance sheet of Casa Del Mar Associates Limited Partnership (a Florida limited partnership, the "Partnership"), as of December 31, 1996, and the related statements of operations, changes in partners' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As indicated in Note 8, the Partnership has experienced deficiencies in cash flow and has required funding from its partners in the year ended December 31, 1997 and the six months ended June 30, 1998. Continuation of the Partnership's operations in the present form is dependent on its ability to achieve cash flow, additional funding from partners, or funding from other sources. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Casa Del Mar Associates Limited Partnership as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Washington, D.C. April 4, 1997 (except with respect to the matter discussed in Note 8, as to which the date is September 14, 1998) F-10 95 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP BALANCE SHEET AS OF DECEMBER 31, 1996 ASSETS CASH AND CASH EQUIVALENTS................................... $ 43,412 TENANT RECEIVABLES, net of allowance for doubtful accounts of $41,247................................................ 17,079 TENANTS' SECURITY DEPOSITS.................................. 70,783 PREPAID INSURANCE........................................... 8,338 FOOD AND LINEN INVENTORY.................................... 26,789 OTHER DEPOSITS.............................................. 33,130 MORTGAGE ESCROW DEPOSITS: Real estate taxes and insurance........................... 183,149 Replacement reserve....................................... 137,441 ----------- 320,590 ----------- RENTAL PROPERTY, AT COST: Land and improvements, net of accumulated depreciation of $388,067............................................... 4,943,802 Buildings and improvements, net of accumulated depreciation of $3,762,804............................. 11,463,811 Furniture, fixtures and equipment, net of accumulated depreciation of $2,749,436............................. 372,655 ----------- 16,780,268 ----------- DEFERRED RENTAL COSTS....................................... 3,717 DEFERRED FINANCE COSTS, net of accumulated amortization of $33,898................................................... 305,082 ----------- Total assets...................................... $17,609,188 =========== LIABILITIES AND PARTNERS' DEFICIT ACCOUNTS PAYABLE AND ACCRUED EXPENSES: Trade payables............................................ $ 235,820 Accrued wages and payroll taxes........................... 74,460 Accrued interest on mortgage note and notes payable....... 152,394 Accrued interest on advances from affiliate............... 54,446 Accrued management fee.................................... 165,997 ----------- 683,117 TENANTS' SECURITY DEPOSITS PAYABLE.......................... 584,373 RENTS RECEIVED IN ADVANCE................................... 15,678 MORTGAGE NOTE PAYABLE....................................... 14,120,604 ADVANCES FROM AFFILIATE..................................... 5,108,000 NOTES PAYABLE............................................... 1,484,503 PARTNERS' DEFICIT........................................... (4,387,087) ----------- Total liabilities and partners' deficit........... $17,609,188 ===========
The accompanying notes are an integral part of this balance sheet. F-11 96 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 REVENUE: Rental income............................................. $6,728,184 Other operating income.................................... 230,617 Operating interest income................................. 1,856 ---------- Total revenue..................................... 6,960,657 ---------- OPERATING EXPENSES: Food services............................................. 1,521,908 Administrative............................................ 1,162,478 Building services......................................... 765,604 Housekeeping.............................................. 359,673 Health services........................................... 322,300 Social activities......................................... 209,743 Property taxes and insurance.............................. 364,527 Marketing................................................. 82,831 ---------- Total operating expenses.......................... 4,789,064 ---------- Net operating income...................................... 2,171,593 ---------- OTHER EXPENSE: Interest expense.......................................... 1,858,350 Depreciation.............................................. 1,044,259 Other expense............................................. 17,934 ---------- Total other expense............................... 2,920,543 ---------- LOSS BEFORE EXTRAORDINARY ITEM.............................. (748,950) EXTRAORDINARY ITEM -- GAIN ON RESTRUCTURING OF DEBT......... 350,257 ---------- NET LOSS.......................................... $ (398,693) ==========
The accompanying notes are an integral part of this financial statement. F-12 97 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' DEFICIT FOR THE YEAR ENDED DECEMBER 31, 1996
SPECIAL PREFERRED GENERAL LIMITED LIMITED PARTNER PARTNER PARTNERS TOTAL --------- ----------- ----------- ----------- BALANCE, January 1, 1996.................. $(564,938) $(2,002,959) $(1,522,609) $(4,090,506) Net loss................................ (21,928) (77,745) (299,020) (398,693) Capital contribution resulting from forgiveness of general partner advance.............................. 102,112 -- -- 102,112 --------- ----------- ----------- ----------- BALANCE, December 31, 1996................ $(484,754) $(2,080,704) $(1,821,629) $(4,387,087) ========= =========== =========== =========== PERCENTAGE INTEREST, as of December 31, 1996.................................... 5.5% 19.5% 75.0% ========= =========== ===========
The accompanying notes are an integral part of this financial statement. F-13 98 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $ (398,693) Adjustments to reconcile net loss to net cash provided by operating activities -- Depreciation........................................... 1,044,259 Amortization of deferred finance costs................. 33,898 Gain on restructuring of debt.......................... (350,257) Change in tenant receivables........................... 40,211 Change in tenants' security deposits................... (20,783) Change in prepaid insurance............................ 31,147 Change in food and linen inventory..................... 60 Change in real estate tax and insurance escrow......... (135,494) Change in deferred rental costs........................ (3,717) Change in other deposits............................... (7,230) Change in accounts payable and accrued expenses........ (6,549) Change in accrued interest............................. 336,106 Change in accrued management fee....................... 109,661 Change in tenants' security deposits payable........... 37,432 Change in rents received in advance.................... 15,678 ---------- Net cash provided by operating activities......... 725,729 ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of furniture, fixtures and equipment............. (115,465) Proceeds from disposition of asset........................ 18,777 Payments to replacement reserve........................... (51,176) Withdrawals from replacement reserve...................... 10,956 ---------- Net cash used in investing activities............. (136,908) ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on mortgage note payable......................... (184,542) Payments on advances from affiliates...................... (270,000) Payments on notes payable................................. (205,434) ---------- Net cash used in financing activities............. (659,976) ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (71,155) CASH AND CASH EQUIVALENTS, beginning of year................ 114,567 ---------- CASH AND CASH EQUIVALENTS, end of year...................... $ 43,412 ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest.................................... $1,488,346 ========== NONCASH FINANCING ACTIVITIES: Transfer of accrued interest into mortgage note payable resulting from refinancing............................. $ 250,746 ========== Capital contribution resulting from forgiveness of general partner advance........................................ $ 102,112 ==========
The accompanying notes are an integral part of this financial statement. F-14 99 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 1. THE PARTNERSHIP: Casa Del Mar Associates Limited Partnership (the "Partnership") was organized as of August 26, 1988 pursuant to the laws of the state of Florida, and according to the Agreement of Limited Partnership (the "Partnership Agreement"), shall continue until December 31, 2038, unless sooner dissolved in accordance with the Partnership Agreement. The Partnership operates a senior living community consisting of 214 apartment units in Palm Beach County, Florida (the "Facility"). The Facility consists of two self-contained buildings. The first building is a 154-unit retirement center consisting of a central amenity building and two wings of individual apartments. The second building is a 60-unit personal care facility, for those individuals requiring some additional assistance with the activities of daily living. On July 12, 1996, a controlling interest in the Partnership's general partner was acquired by NHP Real Estate Corporation, an affiliate of NHP Incorporated (see Note 7). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Partnership considers all highly liquid investments with initial maturities of 90 days or less to be cash equivalents. NHP Management Company ("NHPMC"), a wholly owned subsidiary of NHP Incorporated, assumed property management responsibility for the Facility as part of the purchase effective July 12, 1996. NHPMC maintains at banks concentrated cash and cash equivalent accounts of affiliated entities for which it provides property management services. As of December 31, 1996, NHPMC did not hold any cash on behalf of the Partnership. RENTAL REVENUE Property owned by the Partnership is subject to numerous tenant leasing arrangement having initial terms of one year or less. Rental revenue from these arrangements is recognized on a straight line basis over the appropriate lease term. DEPRECIATION Depreciation of the land improvements and building and improvements are computed using the straight line method, assuming a 15 year and 27.5 year life, respectively. Furniture, fixtures and equipment are depreciated using an accelerated method, assuming an estimated useful life of 5 to 7 years. F-15 100 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) AMORTIZATION Deferred finance costs are amortized over the appropriate mortgage loan period using the straight-line method, which approximates the effective interest method. The related amortization is recorded within interest expense in the accompanying statement of operations. INCOME TAXES The Partnership is not a tax paying entity and, accordingly, no provision has been recorded for Federal or state income tax purposes. The partners are individually responsible for reporting their share of the Partnership's taxable income on their income tax returns. In the event of an examination of the Partnership's tax return by the Internal Revenue Service, the tax liability of the partners could be changed if an adjustment in the Partnership's income is ultimately sustained by the taxing authorities. Certain transactions of the Partnership may be subject to accounting methods for income tax purposes that differ from the accounting methods used in preparing these financial statements in accordance with generally accepted accounting principles. Accordingly, the net income or loss of the Partnership and the resulting balances in the partners' capital accounts reported for income tax purposes may differ from the balances reported for those same items in these financial statements. IMPLEMENTATION OF NEW ACCOUNTING STANDARD The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and Assets to be Disposed Of," which the Partnership implemented on January 1, 1996. The adoption of this statement did not have an effect on the Partnership's financial position or results of operations. 3. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS: Net income of the Partnership is allocated to the partners, pro rata, based on any negative capital account balances, until such negative capital balances are eliminated; any remaining income is allocated to the partners, pro rata, based on their respective percentage interests. Net losses are allocated to the partners, pro rata, based on any positive capital balances, until such positive capital balances are eliminated. Any remaining losses are allocated to the partners, pro rata, based on their respective percentage interests. Net cash flow is to be distributed, pro rata to the Preferred Limited Partners, until each Preferred Limited Partner has received distributions equal to a cumulative, simple 12% annual return on his net cash investment, as defined in the Partnership Agreement. Any remaining net cash flow will be distributed in accordance with the percentage interests. 4. MORTGAGE NOTES PAYABLE: The Partnership is indebted to Washington Capital DUS, Inc. for a first mortgage note payable (the "First Mortgage Note") in the original amount of $14,365,000 issued in September 1995. As of December 31, 1996, the First Mortgage Note had an outstanding balance of $14,120,604. The First Mortgage note is payable in monthly principal and interest payments of $112,016, with an interest rate of 8.12% per annum until F-16 101 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) August 1, 2005, at which time the full unpaid balance is due and payable. Minimum annual principal payments are as follows: 1997............................................ $ 205,563 1998............................................ 222,867 1999............................................ 241,652 2000............................................ 262,022 2001............................................ 284,078 Thereafter...................................... 12,904,422 ----------- $14,120,604 ===========
In connection with the issuance of the First Mortgage Note, the Partnership capitalized deferred finance costs of $338,980, which is shown net of accumulated amortization of $33,898 as of December 31, 1996. The First Mortgage Note is secured by the buildings and improvements, as well as other amounts deposited with the lender. 5. ADVANCES FROM AFFILIATE: Prior to July 12, 1996, the Partnership had been advanced funds from the general partner. These advances bore interest at 9 percent per annum and were to become due on December 31, 2002. In connection with the sale of the general partner interest described in Note 1, any previously accrued and unpaid interest was added to the principal balance, and the note was assigned to NHP Incorporated. In addition, $102,112 in principal and accrued interest was forgiven, resulting in a newly stated outstanding balance of $5,108,000. The gain on forgiveness of debt is reflected as a capital contribution in the accompanying statement of changes in partners' deficit. The new advance bears interest at 9.75 percent per annum, with amounts payable monthly from net cash flow, as defined in the note agreement. All unpaid principal and interest are due and payable on July 12, 2006. F-17 102 CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. NOTES PAYABLE: Prior to July 12, 1996, the Partnership was liable to Casa Del Mar Participation Corporation, an affiliate of the Partnership, for a note payable in the original amount of $2,000,000. This note bore interest at a rate of 13 percent, with variable monthly principal and interest payments, until September 1, 2002, when all unpaid amounts were to become due and payable. In connection with the sale of the general partner interest described in Note 1, this note payable was restructured such that any previously accrued and unpaid interest was added to the principal balance and was assigned to Stephen A. Goldberg. In addition, $350,257 in principal and accrued interest was forgiven, resulting in newly stated principal balance of $1,428,000. This gain on forgiveness of debt is reflected as an extraordinary item on the statement of operations. The new note payable bears interest at 9.00 percent per annum, with amounts payable monthly from net cash flow, as defined in the loan agreement. All unpaid principal and interest are due and payable in July 2006. In addition, as of December 31, 1996, the Partnership was liable for two notes payable, in the aggregate amount of $56,503, issued for the purpose of acquiring business equipment. The loans accrued interest at 13.87 percent and 11.54 percent annually, with combined monthly payments of $2,668 and maturities of October and November 1999, respectively. 7. RELATED-PARTY TRANSACTIONS: NHPMC is the project management agent under an agreement which extends, subject to certain conditions, to the year 2020. Certain stockholders owning approximately 60 percent of the voting stock of NHP Incorporated also control the entity which holds the general partnership interest in the Partnership. During 1996, personnel working at the Facility were employees of NHP Incorporated, and therefore the Facility reimbursed NHP Incorporated for the actual salaries and related benefits, as reflected in the accompanying financial statements. At December 31, 1996, trade payables include $196 due to NHP Incorporated. During 1996, NHPMC received a fee of $106,187 for its services as management agent for the period from July 12, 1996 through December 31, 1996. As part of the management agreement, management fees are calculated as 6 percent of the Facility's rental collections, with 4 percent paid currently, and the remaining 2 percent deferred until January of the following year. As of December 31, 1996, $142,462 of deferred management fees is included in accrued management fee on the accompanying balance sheet. 8. SUBSEQUENT EVENT: The Partnership has experienced deficiencies in cash flow and has required funding from its partners in the year ended December 31, 1997 and the six months ended June 30, 1998. Continuation of the Partnership's operations in the present form is dependent on its ability to achieve cash flow, additional funding from partners, or funding from other sources. F-18 103 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 104 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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-2 105 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 September , 1998 A-3 106 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 6, 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 5, 1998, the last reported sales price of our Class A Common Stock on the NYSE was $34 7/8 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. 107 TABLE OF CONTENTS
PAGE ---- THE COMPANY..................................... 1 RISK FACTORS.................................... 2 Risks of Acquisition and Development Activities.................................. 2 Risks Associated With Debt Financing.......... 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.............. 3 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................... 4 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............................. 5 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 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 Class D Preferred Stock....................... 37 Class E Preferred Stock....................... 38 Class G Preferred Stock....................... 39
PAGE ---- 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.................... 44 DESCRIPTION OF OP UNITS......................... 45 General....................................... 45 Purpose and Business.......................... 45 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........... 48 Class D Partnership Preferred Units........... 48 Class E Partnership Preferred Units........... 49 Class F Partnership Preferred Units........... 49 Class G Partnership Preferred Units........... 49 Class H Partnership Preferred Units........... 49 High Performance Units........................ 50 Distributions................................. 50 Allocations of Net Income and Net Loss........ 52 Withholding................................... 52 Return of Capital............................. 52 Redemption Rights............................. 53 Partnership Right to Call Common OP Units..... 53 Transfers and Withdrawals..................... 53 Issuance of Capital Stock by AIMCO............ 54 Dilution...................................... 55 Amendment of the AIMCO Operating Partnership Agreement................................... 55 Procedures for Actions and Consents of Partners.................................... 55 Records and Accounting; Fiscal Year........... 56 Reports....................................... 56 Tax Matters................................... 56 Dissolution and Winding Up.................... 56 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 FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS................ 77 Partnership Status............................ 77
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PAGE ---- 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 Termination of the AIMCO Operating Partnership................................. 83 Alternative Minimum Tax....................... 84
PAGE ---- 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 GLOSSARY........................................ A-1 SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P.......... B-1
ii 109 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. 1 110 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 2 111 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 $1,626 million of indebtedness outstanding on a consolidated basis, of which $1,604 million was secured. 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. 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. 3 112 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 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 4 113 "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. 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 5 114 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. 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." For example, we will qualify as a REIT only if, as of the close of any year in which we acquire a corporation that is a C Corporation (a corporation that does not qualify for taxation as a REIT, such as Insignia), we have no "earnings and profits" acquired from such C Corporation. In the Insignia merger, we succeeded to the earnings and profits of Insignia and, therefore, 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 through the effective time of the Insignia merger 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 and 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. Additionally, if the $50 million dividend required to be paid on the AIMCO preferred stock issued in the Insignia merger is not treated as a dividend under the Internal Revenue Code, we may, depending upon the amount of other distributions made by us subsequent to the Insignia merger, fail to distribute an amount equal to Insignia's earnings and profits. Our failure to distribute an amount equal to such earnings and profits effective on or before December 31, 1998, would result in our failure to qualify as a REIT. 6 115 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." 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; and - he may be required to recognize a loss from the sale of such shares if the market price decreases. 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 7 116 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. 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 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) 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, 8 117 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. - 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. 9 118 - 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 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. 10 119 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. 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 11 120 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 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 12 121 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. 13 122 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 14 123 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. 15 124 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. 16 125 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 Predecessors is based on the audited financial statements of AIMCO and the Company 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 ========== ========== ========== ======== ======== ======== ======= ========
17 126
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 18 127 (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). 19 128 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
20 129 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 5, 1998)... $37 1/8 $34 3/4 $ -- $ Third Quarter.............................. 41 30 15/16 -- -- 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." 21 130 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 22 131 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. 23 132 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. 24 133 - 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. 25 134 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.......................................... 65,644 437 Southwest........................................... 62,718 309 Southeast........................................... 68,441 341 Mid Atlantic........................................ 63,390 473 Midwest............................................. 69,134 356 ------- ----- 329,297 1,916 ======= =====
- --------------- (1) Includes only units and apartment communities managed by the Company as of October 1, 1998. Does not include 14,279 units in 100 apartment communities in which the Company has an ownership interest but does not manage and 2,332 senior living units, 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. 26 135 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 27 136 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. 28 137 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 29 138 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 30 139 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 August 31, 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 31 140 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 32 141 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 33 142 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. 34 143 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 35 144 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. 36 145 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. 37 146 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. 38 147 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 39 148 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. 40 149 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 August 31, 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 41 150 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 42 151 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. 43 152 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. 44 153 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-1 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. 45 154 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 46 155 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 47 156 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. 48 157 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 49 158 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 50 159 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 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). 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. 51 160 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. 52 161 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 the same redemption rights as 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 a cash amount based on the value of shares of Class A Common Stock. The AIMCO Operating Partnership's obligation to effect a redemption, however, will not arise or be binding against the AIMCO Operating Partnership until and unless AIMCO declines or fails to exercise its right to acquire such Common OP Units pursuant to the AIMCO Operating Partnership Agreement. On or before the close of business on the fifth business day after a Common OP Unitholder gives the AIMCO GP a notice of redemption, the AIMCO GP 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 53 162 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. 54 163 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 55 164 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 56 165 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. 57 166 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
58 167 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
59 168 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
60 169 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
61 170 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
62 171 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."
63 172 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.
64 173 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
65 174 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 a cash amount based on the value of shares of Class A Common Stock. See "Description of OP Units -- Redemption Rights." Upon receipt of a notice of redemption, the AIMCO GP 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.
66 175 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. 67 176 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 68 177 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 69 178 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 70 179 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. 71 180 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 72 181 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 73 182 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. 74 183 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) 75 184 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 76 185 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 77 186 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." 78 187 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. 79 188 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, 80 189 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 81 190 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 82 191 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. 83 192 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. 84 193 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. 85 194 - 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) and September 2, 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. 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. 86 195 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. 87 196 APPENDIX A-1 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-1 197 "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-2 198 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-3 199 "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-4 200 "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-5 201 "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-6 202 "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-7 203 "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-8 204 "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-9 205 "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-10 206 "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-11 207 APPENDIX B-1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P. OF AIMCO PROPERTIES, L.P. a Delaware limited partnership --------------------- dated as of July 29, 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 208 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-22 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-25 Section 7.1 Management................................ B-25 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 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-33 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-35
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PAGE ---- Section 8.6 Redemption Rights of Qualifying Parties... B-35 Section 8.7 Partnership Right to Call Limited Partner Interests.............................................. B-39 ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS........... B-39 Section 9.1 Records and Accounting.................... B-39 Section 9.2 Fiscal Year............................... B-39 Section 9.3 Reports................................... B-39 ARTICLE 10 TAX MATTERS..................................... B-40 Section 10.1 Preparation of Tax Returns................. B-40 Section 10.2 Tax Elections.............................. B-40 Section 10.3 Tax Matters Partner........................ B-40 Section 10.4 Withholding................................ B-41 ARTICLE 11 TRANSFERS AND WITHDRAWALS....................... B-42 Section 11.1 Transfer................................... B-42 Section 11.2 Transfer of General Partner's Partnership Interest............................................... B-42 Section 11.3 Limited Partners' Rights to Transfer....... B-43 Section 11.4 Substituted Limited Partners............... B-44 Section 11.5 Assignees.................................. B-45 Section 11.6 General Provisions......................... B-45 ARTICLE 12 ADMISSION OF PARTNERS........................... B-47 Section 12.1 Admission of Successor General Partner..... B-47 Section 12.2 Admission of Additional Limited Partners... B-47 Section 12.3 Amendment of Agreement and Certificate of Limited Partnership.................................... B-47 Section 12.4 Admission of Initial Limited Partners...... B-47 Section 12.5 Limit on Number of Partners................ B-48 ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION........ B-48 Section 13.1 Dissolution................................ B-48 Section 13.2 Winding Up................................. B-48 Section 13.3 Deemed Distribution and Recontribution..... B-49 Section 13.4 Rights of Limited Partners................. B-50 Section 13.5 Notice of Dissolution...................... B-50 Section 13.6 Cancellation of Certificate of Limited Partnership............................................ B-50 Section 13.7 Reasonable Time for Winding-Up............. B-50 ARTICLE 14 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS; MEETINGS...................................... B-50 Section 14.1 Procedures for Actions and Consents of Partners............................................... B-50 Section 14.2 Amendments................................. B-50 Section 14.3 Meetings of the Partners................... B-50 ARTICLE 15 GENERAL PROVISIONS.............................. B-51 Section 15.1 Addresses and Notice....................... B-51 Section 15.2 Titles and Captions........................ B-51 Section 15.3 Pronouns and Plurals....................... B-51 Section 15.4 Further Action............................. B-51 Section 15.5 Binding Effect............................. B-51 Section 15.6 Waiver..................................... B-51 Section 15.7 Counterparts............................... B-52 Section 15.8 Applicable Law............................. B-52 Section 15.9 Entire Agreement........................... B-52 Section 15.10 Invalidity of Provisions................... B-52 Section 15.11 Limitation to Preserve REIT Status......... B-52
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PAGE ---- Section 15.12 No Partition............................... B-53 Section 15.13 No Third-Party Rights Created Hereby....... B-53 EXHIBIT A PARTNERS AND PARTNERSHIP UNITS EXHIBIT B EXAMPLES REGARDING ADJUSTMENT FACTOR EXHIBIT C LIST OF DESIGNATED PARTIES EXHIBIT D SUB-ALLOCATION OF GROSS FAIR MARKET VALUES EXHIBIT E NOTICE OF REDEMPTION EXHIBIT F FORM OF UNIT CERTIFICATE
NONE OF THE ABOVE EXHIBITS ARE INCLUDED IN THIS PROSPECTUS. THEY ARE AVAILABLE UPON REQUEST OF THE COMPANY. iii 211 SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P. THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P., dated as of July 29, 1994, 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 1 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 such dividend, distribution, split, subdivision, reverse split or combination (assuming for such purposes B-1 212 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 Second 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-2 213 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-3 214 "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-4 215 "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-5 216 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. The sub-allocation of gross fair market value is indicated on Exhibit D attached hereto, as amended. (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-6 217 (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-7 218 "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 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-8 219 (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-9 220 "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-10 221 "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 hereafter 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-11 222 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 a 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-12 223 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-13 224 (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 B-14 225 property; (b) all instruments that the General 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, to 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 of 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 B-15 226 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 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 or 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 or 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 B-16 227 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. 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 B-17 228 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. 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 B-18 229 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. 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) a 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 Debt 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, to 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, B-19 230 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 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. B-20 231 (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. 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 or 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 Units 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. Distributions payable with respect to any Partnership Units 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. B-21 232 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. 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 is 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 B-22 233 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 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 Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.7042(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 B-23 234 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. (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 among 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. B-24 235 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 powers 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 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 distributions to 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; B-25 236 (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; (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, B-26 237 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 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; B-27 238 (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 by the prohibition or restriction. 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 B-28 239 (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 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 B-29 240 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 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") B-30 241 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 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. B-31 242 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). 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 to 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 to the 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 B-32 243 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. 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 B-33 244 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. 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 B-34 245 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; (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 the Cash Amount payable on the Specified Redemption Date. 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"). The Partnership's obligation to effect a Redemption, however, shall not arise or be binding against the Partnership (i) until and unless there has been a Declination and (ii) before the Business Day following the Cut-Off Date. Regardless of the binding or non-binding nature of a pending Redemption, 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. In the event of a Redemption, 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-35 246 B. Notwithstanding the provisions of Section 8.6.A hereof, on or before the close of business on the Cut-Off Date, the General Partner may, in its sole and absolute discretion but subject to the Ownership Limit and the transfer restrictions and other limitations of the Charter, elect to cause the Previous General Partner to acquire some or all (such percentage being referred to as the "Applicable Percentage") of the Tendered Units from the Tendering Party in exchange for REIT Shares. In making such election to cause the Previous General Partner to acquire Tendered Units, the General Partner 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 General Partner so elects, 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. In the event of a purchase of the Tendered Units by the Previous General Partner pursuant to this Section 8.6.B, the Tendering Party shall no longer have the right to cause the Partnership to effect a Redemption of such Tendered Units, and, upon notice to the Tendering Party by the General Partner or the Previous General Partner, given on or before the close of business on the Cut-Off Date, that the Previous General Partner has elected to acquire some or all of the Tendered Units pursuant to this Section 8.6.B, the obligation of the Partnership to effect a Redemption of the Tendered Units as to which the General Partner's notice relates shall not accrue or arise. 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 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 (or the acquisition of the Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof), to less than one 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 or acquisition of the Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof 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. B-36 247 D. In the event that the Previous General Partner declines or fails to exercise its purchase rights 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. The failure of both the Previous General Partner and the General Partner to give notice of such Declination by the close of business on the Cut-Off Date shall itself constitute a Declination. (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 Previous General Partner'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. 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 (or any tender of Redeemable Units for Redemption if the Tendered Units are acquired by the Previous General Partner pursuant to Section 8.6.B hereof) 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, B-37 248 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 (or an acquisition of Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof, as the case may be) 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 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 or an acquisition of the Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof, 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 or an acquisition of the Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof on the Specified Redemption Date; and B-38 249 (3) An undertaking to certify, at and as a condition to the closing of (i) the Redemption or (ii) the acquisition of the Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof 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 or an acquisition of the Tendered Units by the Previous General Partner pursuant to Section 8.6.B hereof, 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 9.3 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. 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 B-39 250 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 purposes. 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 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 B-40 251 matters partner may expressly state that such agreement shall bind all Partners, except that 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 for 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 Partnership 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 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 B-41 252 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 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. B-42 253 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 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 a Limited Partner shall be considered to be owned by such Limited Partner. B-43 254 (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 a 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. 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 B-44 255 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 and 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. 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 B-45 256 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); (xi) if such Transfer would cause the Partnership to have more than five hundred (500) partners (including as partners those persons indirectly owning an interest in the Partnership through a partnership, limited liability company, subchapter S corporation or grantor trust); (xii) if such Transfer causes the Partnership (as opposed to the Previous General Partner or the General Partner) to become a reporting company under the Exchange Act; or (xiii) 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-46 257 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 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 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 of 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-47 258 Section 12.5 Limit on Number of Partners. No Person shall be admitted to the Partnership as an Additional Limited Partner if the effect of such admission would be to cause the Partnership to have a number of Partners (including as Partners for this purpose those Persons indirectly owning an interest in the Partnership through another partnership, a limited liability company, a subchapter S corporation or a grantor trust) that would cause the Partnership to become a reporting company under the Exchange Act. 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 any 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); B-48 259 (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 (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 assets 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 B-49 260 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. 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 Partnership 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 vote or 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-50 261 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 the 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. 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-51 262 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 to 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 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); B-52 263 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. 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. B-53 264 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: Vice Chairman GENERAL PARTNER: AIMCO-GP, INC. By: /s/ PETER KOMPANIEZ ---------------------------------- Name: Peter Kompaniez Title: Vice President SPECIAL LIMITED PARTNER: AIMCO-LP, INC. By: /s/ PETER KOMPANIEZ ---------------------------------- Name: Peter Kompaniez Title: Vice President LIMITED PARTNERS: By: AIMCO-GP, INC., as attorney-in-fact By: /s/ PETER KOMPANIEZ ---------------------------------- Name: Peter Kompaniez Title: Vice President B-54 265 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF BAYWOOD PARTNERS, 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 266 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-13 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-15 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-17 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 Baywood Partners, 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-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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-61 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71 YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72
i 267
PAGE ---- Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-73 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions and Transfers of Units......... S-77
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
ii 268 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 Baywood Partners, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System". 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 (also referred to as the "NYSE"). 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-1 269 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)............................... $ -- -- Third Quarter.......................... $41 $30 15/16 $ -- $ -- 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-2 270 - 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 $4,640.63 per unit for the six months ended June 30, 1998 (equivalent to $9,281.26 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 distributions of $ 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-3 271 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-4 272 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 100% of 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? 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: 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-5 273 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-6 274 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. 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. 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 5 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. 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 S-7 275 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. 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 dies 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 Code. The particular tax consequences to you of the exchange 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 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. S-8 276 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 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 S-9 277 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 278 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, 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. 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 S-11 279 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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 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. S-12 280 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. 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 S-13 281 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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. S-14 282 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 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 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 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. In reaching the capitalization rate, we considered your S-15 283 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. S-16 284 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-1 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 S-17 285 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 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 the Net Cash Flow (as defined in your partnership's agreement of limited partnership) of your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $64,690 in 1996, $65,846 in 1997 and $32,547 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 Your Partnership and its Property. Baywood Partners, Ltd. is an Alabama limited partnership which was formed on January 1, 1979 for the purpose of owning and operating an apartment property located in Gretna, Louisiana, known as "Baywood Apartments." In 1979, it completed a private placement of units that raised net proceeds of approximately $1,984,000. Baywood Apartments consists of 226 apartment units. Your partnership has no employees. Property Management. Since November, 1992, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $4,358,066, payable to FNMA, which bears interest at a rate of 7.83%. The mortgage debt is due in October, 2003. Your S-18 286 partnership also has a second mortgage note outstanding of $142,290, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-19 287 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 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-20 288
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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-21 289 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 290
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................................................ 4,150,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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-23 291 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 292 SUMMARY FINANCIAL INFORMATION OF BAYWOOD PARTNERS, LTD. The summary financial information of Baywood Partners, Ltd. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Baywood Partners, Ltd. 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 of Your Partnership" included herein. See "Index to Financial Statements." BAYWOOD PARTNERS, LTD.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, --------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------------ ------------ ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... 654,689 668,107 1,324,481 1,325,546 1,297,874 1,237,530 1,200,446 Net Income/(Loss)............ 103,558 132,679 162,269 168,889 135,571 20,748 55,605 BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... 1,669,602 1,603,008 1,644,680 1,580,737 1,479,267 1,411,587 1,370,493 Total Assets................. 2,512,440 2,574,936 2,589,028 2,590,558 2,537,235 2,761,627 2,686,639 Mortgage Notes Payable, including Accrued Interest................... 4,454,816 4,505,759 4,469,935 4,518,594 4,563,624 4,605,295 4,644,184 Partners' Capital/(Deficit).......... (2,023,346) (2,004,343) (1,974,753) (2,040,052) (2,158,589) (2,041,647) (2,062,395)
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 YOUR 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 $4,640.63 $3,030.31
S-25 293 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. Based on apartment unit data compiled as of January 1, 1998 by the National Multihousing 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 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 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. S-26 294 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 Code. 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 therefore 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 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 S-27 295 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 $4,640.63 per unit (equivalent to $9,281.26 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 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. 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. S-28 296 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 297 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 would 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 apartment 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-30 298 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-31 299 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 300 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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-33 301 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. 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. S-34 302 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." 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. 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. S-35 303 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, (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 9:00 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 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, Denver, Colorado time. S-36 304 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 305 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. 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 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 S-38 306 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 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 S-39 307 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 308 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. 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. 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-41 309 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-42 310 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 payment. 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 OP Units and any such S-43 311 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-44 312 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-45 313 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-46 314 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-47 315 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-48 316 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-49 317 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 318 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-51 319 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 320 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 321 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 322 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 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, a third party expert, 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 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 $4,640.63 (equivalent to $9,281.26 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-55 323 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-56 324 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. 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-57 325 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-58 326 performed a site inspection 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 September 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 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 property was 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 S-59 327 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. S-60 328 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 $9,000 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-61 329 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 Alabama law for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Baywood Apartments. 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 (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 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 for the sole purpose The purpose of the AIMCO Operating Partnership is to of being the sole limited partner of Baywood conduct any business that may be lawfully conducted by Apartments, Ltd., an Alabama limited partnership, which a limited partnership organized pursuant to the holds your partnership's property. Subject to Delaware Revised Uniform Limited Partnership Act (as restrictions contained in your partnership's agreement amended from time to time, or any successor to such of limited partnership, your partnership may perform statute) (the "Delaware Limited Partnership Act"), any acts to accomplish the foregoing including, without provided that such business is to be conducted in a limitation, borrowing funds 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-62 330 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 up to 32 additional Partnership for any partnership purpose from time to limited partners by selling not more than 1,984 units time to the limited partners and to other persons, and for 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. 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 The general partner of your partnership and its The AIMCO Operating Partnership may lend or contribute affiliates may make loans to your partnership but is funds or other assets to its subsidiaries or other precluded from receiving interest in excess of what persons in which it has an equity investment, and such would be charged by unrelated banks for comparable persons may borrow funds from the AIMCO Operating loans. Your partnership is prohibited from making loans Partnership, on terms and conditions established in the to the general partner, the limited partners or any sole and absolute discretion of the general partner. To their affiliates and cannot sell or lease its interest the extent consistent with the business purpose of the in your partnership's property to the general partner, AIMCO Operating Partnership and the permitted the limited partners or any of their affiliates. 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 execute promissory notes secured by restrictions on borrowings, and the general partner has a mortgage on your partnership's property, provided full power and authority to borrow money on behalf of that your partnership may borrow only such amounts for the AIMCO Operating Partnership. The AIMCO Operating which it can reasonably expect to meets debt service Partnership has credit agreements that restrict, among requirements from anticipated Net Cash Flow and may not other things, its ability to incur indebtedness. See issue senior securities except as set forth in your "Risk Factors -- Risks of Significant Indebtedness" in partnership's agreement of limited partnership. the accompanying Prospectus.
S-63 331 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 limited partners to review the records of your with a statement of the purpose of such demand and at partnership at reasonable times upon reasonable notice such OP Unitholder's own expense, to obtain a current at the location where such records are kept by your list of the name and last known business, residence or partnership. mailing address of the general partner and each other OP Unitholder.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of discretion in the management and control of the the AIMCO Operating Partnership are vested in AIMCO-GP, business of your partnership, except to the extent Inc., which is the general partner. No OP Unitholder specifically limited by your partnership's agreement of has any right to participate in or exercise control or limited partnership or by law. No limited partner may management power over the business and affairs of the take part in the management of the business of your AIMCO Operating Partnership. The OP Unitholders have partnership, transact any business for your partnership the right to vote on certain matters described under or have the power to sign for or bind your partnership "Comparison of Ownership of Your Units and AIMCO OP to any agreement or document. 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 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 any act partner is not liable to the AIMCO Operating performed in its capacity as general partner. However, Partnership for losses sustained, liabilities incurred your partnership will indemnify and save harmless the or benefits not derived as a result of errors in general partner of your partnership, its officers, judgment or mistakes of fact or law of any act or directors, employees, affiliates, designees and omission if the general partner acted in good faith. nominees from any loss or damage, including legal fees The AIMCO Operating Partnership Agreement provides for and expenses and amounts paid in settlement, incurred indemnification of AIMCO, or any director or officer of by any of them on behalf of your partnership or in AIMCO (in its capacity as the previous general partner furtherance of your partnership's interest, provided of the AIMCO Operating Partnership), the general that the general partner or other person sued will not partner, any officer or director of general partner or be entitled to indemnification for losses sustained by the AIMCO Operating Partnership and such other persons reason of its negligence, gross negligence, willful as the general partner may designate from and against misconduct or breach of fiduciary obligations. 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 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
S-64 332 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 general partner of your partnership has exclusive management power over the business and may be removed and an additional or substitute general affairs of the AIMCO Operating Partnership. The general partner may be elected upon the written consent or partner may not be removed as general partner of the affirmative vote of the limited partners owning a AIMCO Operating Partnership by the OP Unitholders with majority of the limited partnership units outstanding. or without cause. Under the AIMCO Operating Partnership Such actions may be taken without the consent of the Agreement, the general partner may, in its sole existing general partner or any general partner who has discretion, prevent a transferee of an OP Unit from been removed. With the consent of a majority in becoming a substituted limited partner pursuant to the interest of the limited partners, the general partner AIMCO Operating Partnership Agreement. The general may add or substitute any other person as general partner may exercise this right of approval to deter, partner. Upon ninety days notice, a general partner may delay or hamper attempts by persons to acquire a resign provided that your partnership has a remaining controlling interest in the AIMCO Operating Partner- corporation general partner who is qualified to act as ship. Additionally, the AIMCO Operating Partnership such or the remaining individual general partners have Agreement contains restrictions on the ability of OP an aggregate net worth that is substantial. A limited Unitholders to transfer their OP Units. See partner may not transfer his interests in your "Description of OP Units -- Transfers and Withdrawals" partnership without the consent of the general partner, in the accompanying Prospectus. provided that a limited partner may make a gratuitous transfer to certain specified individuals.
Amendment of Your Partnership Agreement Amendments to your partnership's agreement of limited With the exception of certain circumstances set forth partnership may be proposed by the general partner of in the AIMCO Operating Partnership Agreement, whereby your partnership or by limited partners owning at least the general partner may, without the consent of the OP 10% of the then outstanding limited partnership Unitholders, amend the AIMCO Operating Partnership interests. Approval by a majority of the then Agreement, amendments to the AIMCO Operating outstanding limited partnership interests is necessary Partnership Agreement require the consent of the to effect an amendment to your partnership's agreement holders of a majority of the outstanding Common OP of limited partnership. In addition, the general Units, excluding AIMCO and certain other limited partner may amend your partnership's agreement of exclusions (a "Majority in Interest"). Amendments to limited partnership from time to time to add the AIMCO Operating Partnership Agreement may be representations, duties or obligation of the general proposed by the general partner or by holders of a partner or to surrender rights granted to the general Majority in Interest. Following such proposal, the partner, cure any ambiguity or make modifications general partner will submit any proposed amendment to required by state or Federal securities law. the OP Unitholders. The general partner will seek the Notwithstanding the foregoing, certain provisions of written consent of the OP Unitholders on the proposed your partnership's agreement of limited partnership are amendment or will call a meeting to vote thereon. See not subject to amendment in any case. "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives an annual management fee equal to 5% of the capacity as general partner of the AIMCO Operating Net Cash Flow (as defined in your partnership's Partnership. In addition, the AIMCO Operating Part- agreement of limited partnership. Moreover, the general nership is responsible for all expenses incurred partner or certain affiliates may be entitled to relating to the AIMCO Operating Partnership's ownership compensation for additional services rendered. 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-65 333 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 personally liable negligence, no OP Unitholder has personal liability for for any of the debts of your partnership or any of the the AIMCO Operating Partnership's debts and losses thereof beyond the amount contributed by the obligations, and liability of the OP Unitholders for limited partner to the capital of your partnership, its the AIMCO Operating Partnership's debts and obligations notes for capital contributions to your partnership and is generally limited to the amount of their invest- the limited partner's share of undistributed profits of ment in the AIMCO Operating Partnership. However, the 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 Your partnership's agreement of limited partnership Unless otherwise provided for in the relevant provides that the general partner must manage and partnership agreement, Delaware law generally requires control the affairs of your partnership to the best of a general partner of a Delaware limited partnership to its ability and use its best efforts to carry out the adhere to fiduciary duty standards under which it owes purposes of your partnership. The general partner must its limited partners the highest duties of good faith, diligently and faithfully devote such of its time to fairness and loyalty and which generally prohibit such the business of your partnership at it deems necessary general partner from taking any action or engaging in to conduct it for the greatest advantage 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 funds expressly authorizes the general partner to enter into, and assets of your partnership, whether or not in its on behalf of the AIMCO Operating Partnership, a right immediate possession or control and may not employ, or of first opportunity arrangement and other conflict permit another to employ, such funds or assets in any avoidance agreements with various affiliates of the manner except for the exclusive benefit of your AIMCO Operating Partnership and the general partner, on partnership. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-66 334 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, limited applicable law or in the AIMCO ship Agreement, the OP Unitholders partners have voting rights in Operating Partnership Agreement, have voting rights only with certain circumstances and are not the holders of the Preferred OP respect to certain limited matters deemed to take part in the control Units will have the same voting such as certain amendments and of your partnership by virtue of rights as holders of the Common OP termination of the AIMCO Operating their voting rights. An affirmative Units. See "Description of OP Partnership Agreement and certain vote by holders of a majority of Units" in the accompanying transactions such as the the outstanding units is necessary Prospectus. So long as any institution of bankruptcy for: the removal of the general Preferred OP Units are outstand- proceedings, an assignment for the partner, the election of an ing, in addition to any other vote benefit of creditors and certain additional or substitute general or consent of partners required by transfers by the general partner of partner, an amendment to your law or by the AIMCO Operating its interest in the AIMCO Operating partnership's agreement of limited Partnership Agree- Part-
S-67 335 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS partnership and the dissolution of ment, the affirmative vote or nership or the admission of a your partnership before the date of consent of holders of at least 50% successor general partner. termination set forth in your of the outstanding Preferred OP partnership's agreement of limited Units will be necessary for Under the AIMCO Operating Partner- 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 unless, the remaining adversely affects the rights or any assets of the AIMCO Operating general partner elects to continue preferences of the holders of the Partnership (including, but not your partnership or if the re- Preferred OP Units. The creation or limited to, the exercise or grant maining general partner fails to do issuance of any class or series of of any conversion, option, so, the limited partners owning partnership units, including, privilege or subscription right or more the 50% of the then without limitation, any partner- any other right available in outstanding units elect to con- ship units that may have rights connection with any assets at any tinue your partnership and, if senior or superior to the Preferred time held by the AIMCO Operating necessary, elect a new general OP Units, shall not be deemed to Partnership) or the merger, partner. 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 The general partner of your Holders of Preferred OP Units will Subject to the rights of holders of partnership annually distributes be entitled to receive, when and as any outstanding Preferred OP Units, substantially all of your declared by the board of directors the AIMCO Operating Partnership partnership's Net Cash Flow (as of the general partner of the AIMCO Agreement requires the general defined in your partnership's Operating Partnership, quarterly partner to cause the AIMCO agreement of limited partnership) cash distributions at the rate of Operating Partnership to dis- with each partner receiving their $ per Preferred OP Unit; tribute quarterly all, or such pro rata share in accordance with provided, however, that at any time portion as the general partner may their ownership of units. Any pro- and from time to time on or after in its sole and absolute discretion ceeds received from the sale or the fifth anniversary of the issue determine, of Available Cash (as refinancing of your partnership's date of the Preferred OP Units, the defined in the AIMCO Operating property will be distributed in AIMCO Operating Partnership may Partnership Agreement) generated by accordance with your part- adjust the annual distribution rate the AIMCO Operating Partnership nership's agreement of limited 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. The general preferred stock which ranks on a interests in the AIMCO Operating partner designates a record date to parity with its Class H Cumu- Partnership on such record date. determine partners entitled to cash Holders of any other Pre- distributions which is not be less
S-68 336 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS than fifteen days nor more the lative Preferred Stock. Such ferred OP Units issued in the thirty days before the distributions will be cumulative future may have priority over the distribution. No limited partner from the date of original issue. general partner, the special has priority over any other limited Holders of Preferred OP Units will limited partner and holders of partner as to distributions. Your not be entitled to receive any Common OP Units with respect to partnership has made distributions distributions in excess of distributions of Available Cash, in the past and is projected to cumulative distributions on the distributions upon liquidation or make distributions in 1998. 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 transfer There is no public market for the There is no public market for the or assign any or any portion of his Preferred OP Units and the OP Units. The AIMCO Operating Part- interest in his limited partnership Preferred OP Units are not listed nership Agreement restricts the interest unless the general partner on any securities exchange. The transferability of the OP Units. consents (which consent may be Preferred OP Units are subject to Until the expiration of one year withheld at the sole discretion of restrictions on transfer as set from the date on which an OP the general partner) and the forth in the AIMCO Operating Unitholder acquired OP Units, limited partner complies with Partnership Agreement. subject to certain exceptions, such applicable state and Federal OP Unitholder may not transfer all securities laws. In addition, no Pursuant to the AIMCO Operating or any portion of its OP Units to transfer may be made of less than Partnership Agreement, until the any transferee without the consent 30 units. Notwithstanding the expiration of one year from the of the general partner, which foregoing, a limited partner may date on which a holder of Preferred consent may be withheld in its sole gratuitously transfer all or any OP Units acquired Preferred OP and absolute discretion. After the portion of his interest in his Units, subject to certain expiration of one year, such OP limited partnership interest to his exceptions, such holder of Unitholder has the right to spouse, any member of his family, a Preferred OP Units may not transfer transfer all or any portion of its trust for the benefit of those all or any portion of its Pre- OP Units to any person, subject to individuals or a corporation in ferred OP Units to any transferee the satisfaction of certain which such partner has a majority without the consent of the general conditions specified in the AIMCO interest. No assignment or partner, which consent may be Operating Partnership Agreement, transfers will be permitted if such withheld in its sole and absolute including the general partner's assignment or transfer would result discretion. After the expiration of right of first refusal. See in 50% or more of the limited one year, such holders of Preferred "Description of OP Units -- partnership interest being assigned OP Units has the right to transfer Transfers and Withdrawals" in the or transferred within any all or any portion of its Preferred accompanying Prospectus. twelve-month period. OP Units to any person, subject to the satisfaction of
S-69 337 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS There are no redemption rights certain conditions specified in the After the first anniversary of associated with your units. AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-70 338 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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 own 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 the Net Cash Flow (as defined in your partnership's agreement of limited partnership) from your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $64,690 in 1996, $65,846 in 1997 and $32,547 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-71 339 YOUR PARTNERSHIP GENERAL Baywood Partners, Ltd. is an Alabama limited partnership which raised net proceeds of approximately $1,984,000 in 1979 through a private offering. The promoter for the private offering of your partnership was Angeles Properties, Inc. Insignia acquired your partnership in November, 1992. AIMCO acquired Insignia in October, 1998. There are currently a total of 35 limited partners of your partnership and a total of 32 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the multi-family property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on January 1, 1979 for the purpose of owning and operating an apartment property located in Gretna, Louisiana, known as "Baywood Apartments." Your partnership's property consists of 226 apartment units. There are 104 one-bedroom apartments, 76 two-bedroom apartments and 46 three-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 96.02% in 1996 and 96.02% in 1997. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November, 1992, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $64,690, $65,846 and $32,547, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-72 340 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $4,358,066, payable to FNMA, which bears interest at a rate of 7.83%. The mortgage debt is due in October, 2003. Your partnership also has a second mortgage note outstanding of $142,290, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. The financial statements have been prepared on an income tax basis. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 341 Below is selected financial information for Baywood Partners, Ltd. taken from the financial statements described above. The amounts for 1993 have been derived from audited financial statements which are not included in this Prospectus Supplement. See "Index to Financial Statements."
BAYWOOD PARTNERS, LTD. ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents... $ 320,795 $ 433,338 $ 419,804 $ 509,885 $ 484,322 $ 635,814 $ 442,664 Land & Building............. 4,984,040 4,820,948 4,910,869 4,750,428 4,565,005 4,336,146 4,192,102 Accumulated Depreciation.... (3,314,438) (3,217,940) (3,266,189) (3,169,691) (3,085,738) (2,924,559) (2,821,609) Other Assets................ 522,043 538,590 524,544 499,936 573,646 714,226 873,482 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets....... $ 2,512,440 $ 2,574,936 $ 2,589,028 $ 2,590,558 $ 2,537,235 $ 2,761,627 $ 2,686,639 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest.................. 4,454,816 4,505,759 4,469,935 4,518,594 4,563,624 4,605,295 4,644,184 Other Liabilities........... 80,970 73,520 93,846 112,016 132,200 197,979 104,850 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities...... $ 4,535,786 $ 4,579,279 $ 4,563,781 $ 4,630,610 $ 4,695,824 $ 4,803,274 $ 4,749,034 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)................. $(2,023,346) $(2,004,343) $(1,974,753) $(2,040,052) $(2,158,589) $(2,041,647) $(2,062,395) =========== =========== =========== =========== =========== =========== ===========
BAYWOOD PARTNERS, LTD. ------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue......................... $622,964 $633,444 $1,251,888 $1,253,668 $1,227,468 $1,121,158 $1,130,064 Other Income........................... 31,725 34,663 72,593 71,878 70,406 116,372 70,382 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Revenue................. $654,689 $668,107 $1,324,481 $1,325,546 $1,297,874 $1,237,530 $1,200,446 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Expenses..................... 275,778 271,198 593,179 590,698 519,148 627,459 464,102 General & Administrative............... 25,099 11,865 36,996 50,012 42,841 47,220 136,090 Depreciation........................... 48,249 48,249 96,498 83,953 161,178 113,527 107,962 Interest Expense....................... 176,887 179,171 386,668 389,778 394,004 383,204 387,540 Property Taxes......................... 25,118 24,945 48,871 42,216 45,132 45,372 49,147 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Expenses................ $551,131 $535,428 $1,162,212 $1,156,657 $1,162,303 $1,216,782 $1,144,841 -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income............................. $103,558 $132,679 $ 162,269 $ 168,889 $ 135,571 $ 20,748 $ 55,605 ======== ======== ========== ========== ========== ========== ==========
S-74 342 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $103,558 for the six months ended June 30, 1998, compared to $132,679 for the six months ended June 30, 1997. The decrease in net income of $29,121, or 21.95% is due to a decrease in rental revenues and an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $654,689 for the six months ended June 30, 1998, compared to $668,107 for the six months ended June 30, 1997, a decrease of $13,418, or 2.01%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $275,778 for the six months ended June 30, 1998, compared to $271,198 for the six months ended June 30, 1997, an increase of $4,580 or 1.69%. Management expenses totaled $32,547 for the six months ended June 30, 1998, compared to $33,521 for the six months ended June 30, 1997, a decrease of $974, or 2.91%. General and Administrative Expenses General and administrative expenses totaled $25,099 for the six months ended June 30, 1998 compared to $11,865 for the six months ended June 30, 1997, an increase of $13,234 or 111.54% The increase is primarily due to an increase in the partnership asset management fee. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $176,887 for the six months ended June 30, 1998, compared to $179,171 for the six months ended June 30, 1997, a decrease of $2,284, or 1.27%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $162,269 for the year ended December 31, 1997, compared to $168,889 for the year ended December 31, 1996, a decrease in net income of $6,620, or 3.92%. Revenues Rental and other property revenues from the partnership's property totaled $1,324,481 for the year ended December 31, 1997, compared to $1,325,546 for the year ended December 31, 1996, a decrease of $1,065, or 0.08%. S-75 343 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $593,179 for the year ended December 31, 1997, compared to $590,698 for the year ended December 31, 1996, an increase of $2,481 or 0.42%. Management expenses totaled $65,846 for the year ended December 31, 1997, compared to $64,690 for the year ended December 31, 1996, an increase of $1,156, or 1.79%. General and Administrative Expenses General and administrative expenses totaled $36,996 for the year ended December 31, 1997 compared to $50,012 for the year ended December 31, 1996, a decrease of $13,016 or 26.03%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $386,668 for the year ended December 31, 1997, compared to $389,778 for the year ended December 31, 1996, a decrease of $3,110, or 0.80%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $168,889 for the year ended December 31, 1996, compared to $135,571 for the year ended December 31, 1995. The increase in net income of $33,318, or 24.58% was primarily the result of an increase in rental revenues and a decrease in depreciation offset by an increase in operating expenses. The decrease in depreciation is due to some assets becoming fully depreciated in 1995. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,325,546 for the year ended December 31, 1996, compared to $1,297,874 for the year ended December 31, 1995, an increase of $27,672, or 2.13%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $590,698 for the year ended December 31, 1996, compared to $519,148 for the year ended December 31, 1995. The increase of $71,550 or 13.78%, is primarily due to expenses incurred for paving repairs and new floor coverings and appliances at the property. Management expenses totaled $64,690 for the year ended December 31, 1996, compared to $64,085 for the year ended December 31, 1995, an increase of $605, or 0.94%. General and Administrative Expenses General and administrative expenses totaled $50,012 for the year ended December 31, 1996 compared to $42,841 for the year ended December 31, 1995, an increase of $7,171 or 16.74%. S-76 344 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $389,778 for the year ended December 31, 1996, compared to $394,004 for the year ended December 31, 1995, a decrease of $4,226, or 1.07%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $320,795 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your Partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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's agreement of limited partnership does not limit the liability of the general partner to your partnership or the limited partners for any act performed in its capacity as general partner. The general partner of your partnership is owned 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, its officers, directors, employees, affiliates, designees and nominees from any loss or damage, including legal fees and expenses and amounts paid in settlement, incurred by any of them on behalf of your partnership or in furtherance of your partnership's interest, provided that the general partner or other person sued will not be entitled to indemnification for losses sustained by reason of its negligence, gross negligence, willful misconduct or breach of fiduciary obligations. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 or any other indemnified person. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $62,000.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 0.00 1995........................................................ 7,734.00 1996........................................................ 1,515.91 1997........................................................ 3,000.00 1998 (through June 30)...................................... 4,640.63
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for S-77 345 tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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........................................................ $25,620 1995........................................................ $41,259 1996........................................................ $51,614 1997........................................................ $33,198 1998 (through June 30)......................................
YEAR COMPENSATION - ---- ------------ 1995........................................................ 64,085 1996........................................................ 64,690 1997........................................................ 65,846 1998 (through June 30)...................................... 32,547
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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-78 346 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 -- income tax basis of Baywood Partners, Ltd. as of December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-79 347 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Statement of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of June 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Revenue and Expenses -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)............................................... F-3 Condensed Statements of Cash Flows -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Consolidated Statement of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1997....... F-8 Consolidated Statement of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the year ended December 31, 1997................................... F-9 Consolidated Statement of Cash Flows -- Income Tax Basis for the year ended December 31, 1997......................................... F-10 Notes to Consolidated Financial Statements -- Income Tax Basis..................................................... F-11 Independent Auditors' Report................................ F-15 Consolidated Statement of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1996....... F-16 Consolidated Statement of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the year ended December 31, 1996................................... F-17 Consolidated Statement of Cash Flows -- Income Tax Basis for the year ended December 31, 1996......................................... F-18 Notes to Consolidated Financial Statements -- Income Tax Basis..................................................... F-19 Independent Auditors' Report................................ F-23 Consolidated Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1995 and 1994...................................................... F-24 Consolidated Statements of Revenue and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1995 and 1994.......................... F-25 Consolidated Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1995 and 1994............ F-26 Notes to Consolidated Financial Statements -- Income Tax Basis..................................................... F-27
F-1 348 BAYWOOD PARTNERS, LIMITED CONDENSED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT INCOME TAX BASIS JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 320,795 Receivables and Deposits.................................... 93,134 Investments................................................. -- Restricted Escrows.......................................... 100,031 Other Assets................................................ 328,878 Investment Property: Land...................................................... $ 260,000 Building and related personal property.................... 4,724,040 ----------- 4,984,040 Less: Accumulated depreciation.............................. (3,314,438) 1,669,602 ----------- ----------- Total Assets:..................................... $ 2,512,440 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 15,857 Other Accrued Liabilities................................... 32,147 Property Taxes Payable...................................... 25,118 Tenant Security Deposits.................................... 23,150 Notes Payable............................................... 4,439,514 Partners' Capital........................................... (2,023,346) ----------- Total Liabilities and Partners' Capital........... $ 2,512,440 ===========
See notes to interim financial statements. F-2 349 BAYWOOD PARTNERS, LIMITED CONDENSED STATEMENTS OF REVENUE AND EXPENSES INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 1997 -------- -------- Revenues: Rental Income............................................. $622,964 $633,444 Other Income.............................................. 31,725 34,663 -------- -------- Total Revenues:................................... 654,689 668,107 Expenses: Operating Expenses........................................ 275,778 271,198 General and Administrative Expenses....................... 25,099 11,865 Depreciation Expense...................................... 48,249 48,249 Interest Expense.......................................... 176,887 179,171 Property Tax Expense...................................... 25,118 24,945 -------- -------- Total Expenses:................................... 551,131 535,428 Net (Income) Loss........................................... $103,558 $132,679 ======== ========
See notes to interim financial statements. F-3 350 BAYWOOD PARTNERS, LIMITED CONDENSED STATEMENTS OF CASH FLOWS INCOME TAX BASIS (UNAUDITED)
FOR THE SIX MONTHS ENDED ------------------------- JUNE 30, JUNE 30, 1998 1997 ----------- ----------- Operating Activities: Net Income (loss)........................................... $ 103,558 $ 132,679 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization............................... 48,249 48,249 Changes in accounts: Receivables and deposits and other assets................. 3,921 (89,429) Accounts Payable and accrued expenses..................... 2,426 (23,194) --------- --------- Net cash provided by (used in) operating activities......... 158,154 68,305 --------- --------- Investing Activities Property improvements and replacements...................... (73,171) (70,520) (1,420) 50,775 --------- --------- Net cash provided by (used in) investing activities......... (74,591) (19,745) --------- --------- Financing Activities Payments on mortgage........................................ (30,421) (28,137) Partners' Distributions..................................... (152,151) (96,970) --------- --------- Net cash provided by (used in) financing activities......... (182,572) (125,107) --------- --------- Net increase (decrease) in cash and cash equivalents........ (99,009) (76,547) Cash and cash equivalents at beginning of year.............. 419,804 509,885 --------- --------- Cash and cash equivalents at end of period.................. $ 320,795 $ 433,338 ========= =========
See notes to interim financial statements. F-4 351 BAYWOOD PARTNERS, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS -- INCOME TAX BASIS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Baywood Partners, Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with the accounting basis for federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis for federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 352 BAYWOOD PARTNERS, LIMITED CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 353 INDEPENDENT AUDITORS' REPORT General Partners Baywood Partners, Limited: We have audited the consolidated statement of assets, liabilities and partners' deficit -- income tax basis of Baywood Partners, Limited (a limited partnership) and its limited partnership interest as of December 31, 1997, and the related consolidated statements of revenues and expenses and changes in partners' deficit -- income tax basis and cash flows -- income tax basis for the year then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note A, these consolidated financial statements were prepared on the basis of accounting Baywood Partners, Limited uses for Federal income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Baywood Partners, Limited and its limited partnership interest as of December 31, 1997, and the results of their operations and their cash flows for the year then ended, on the basis of accounting described in Note A. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 18,1998 F-7 354 BAYWOOD PARTNERS, LIMITED CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS ASSETS
DECEMBER 31, 1997 ------------ Cash and cash equivalents................................... $ 419,804 Receivables and deposits.................................... 93,448 Restricted escrows (Note B)................................. 98,611 Other assets................................................ 332,485 Investment properties (Note C): Land...................................................... 260,000 Buildings and related personal property................... 4,650,869 ----------- 4,910,869 Less accumulated depreciation............................. (3,266,189) ----------- 1,644,680 ----------- $ 2,589,028 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 19,844 Tenant security deposits.................................. 27,490 Other liabilities......................................... 46,512 Mortgage notes payable (Note C)........................... 4,469,935 Partners' deficit........................................... (1,974,753) ----------- $ 2,589,028 ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-8 355 BAYWOOD PARTNERS, LIMITED CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1997 ------------ Revenues: Rental income............................................. $ 1,251,888 Other income.............................................. 72,593 ----------- Total revenues.................................... 1,324,481 ----------- Expenses: Operating (Note D)........................................ 593,179 General and administrative (Note D)....................... 36,996 Depreciation.............................................. 96,498 Interest.................................................. 386,668 Property taxes............................................ 48,871 ----------- Total expenses.................................... 1,162,212 ----------- Net income.................................................. 162,269 Distributions to partners................................... (96,970) Partners' deficit at beginning of year...................... (2,040,052) ----------- Partners' deficit at end of year............................ $(1,974,753) ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-9 356 BAYWOOD PARTNERS, LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS -- INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1997 ------------ Cash flows from operating activities: Net income................................................ $ 162,269 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 96,498 Amortization of discounts and loan costs............... 29,445 Change in accounts: Receivables and deposits............................. (695) Other assets......................................... (7,079) Accounts payable..................................... (13,175) Tenant security deposit liabilities.................. (6,000) Other liabilities.................................... 1,005 --------- Net cash provided by operating activities......... 262,268 --------- Cash flows from investing activities: Property improvements and replacements.................... (160,441) Net deposits to restricted escrows........................ (4,053) --------- Net cash used in investing activities............. (164,494) --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (57,395) Distributions to partners................................. (96,970) --------- Net cash used in financing activities............. (154,365) --------- Net decrease in cash and cash equivalents................... (56,591) Cash and cash equivalents at beginning of year.............. 476,395 --------- Cash and cash equivalents at end of year.................... $ 419,804 ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 357,223 =========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-10 357 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of Baywood Partners, Limited (the "Partnership"), and its Limited Partnership interest in Baywood Apartments (the "Project Partnership"). The Partnership was organized solely to invest in the Project Partnership. The Project Partnership owns and operates a 226 unit apartment complex located in Jefferson Parish, Louisiana. The Partnership was organized as an Alabama limited partnership on February 15, 1979. The General Partner of the Partnership is Angeles Properties, Inc. ("API"), which acts as a general partner in other limited partnerships and is an affiliate of Angeles Investment Properties, Inc. ("AIPI"), the general partner of the Project Partnership. Pursuant to the terms of the Agreement and Amended Certificate of Limited Partnership (the "Agreement"), API has contributed $100,000 to the Partnership for which it is entitled to a 1% operating interest in the profits, losses, credits and cash distributions of the Partnership. Capital contributions of the limited partners aggregated $1,936,200. Pursuant to the terms of the Agreement, the limited partners will receive a 99% interest in the operating profits, losses, credits and cash distributions of the Partnership. The Partnership had made capital contributions of $1,442,000 to the Project Partnership and is entitled to a 99% interest in the operating profits, losses, credits and cash distributions of the Project Partnership. AIPI is entitled to the remaining 1% of the same. Basis of Accounting The consolidated financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The consolidated financial statements represent the combination of both the Partnership and Project Partnership's tax returns. The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("ACRS") instead of over the estimated lives of the assets, (3) syndication costs are carried at their original value, instead of being amortized over the estimated life of assets, and (4) income is recorded at the partnership level based on the partnership agreement and the Internal Revenue Code instead of being recorded based on the percentage of ownership interest. On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or losses and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. F-11 358 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Depreciation Depreciation is provided in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Under generally accepted accounting principles, the cost of depreciable assets would be allocated systematically over their estimated useful lives. Other Assets Other assets at December 31, 1997 include deferred loan costs of $111,612 which are amortized over the term of the related borrowing. Deferred costs are shown net of accumulated amortization. Also included in other assets at December 31, 1997 are syndication costs of $194,045 which are not amortized. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers cash and highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 were $98,611 and consist of a reserve escrow established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 consist of the following:
1997 ---------- First mortgage note payable in monthly installments of $33,623, including interest at 7.83%, due October 2003; collateralized by land and buildings...................... $4,388,487 Second mortgage note payable in interest only monthly installments of $928, at a rate of 7.83%, with principal due October 2003; collateralized by land and buildings.... 142,290 ---------- Principal balance at year end............................... 4,530,777 Less unamortized discount................................... (60,842) ---------- $4,469,935 ==========
Scheduled net principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998........................................................ $ 62,053 1999........................................................ 67,090 2000........................................................ 72,536 2001........................................................ 78,424 2002........................................................ 84,789 Thereafter.................................................. 4,165,885 ---------- $4,530,777 ==========
F-12 359 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of payment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership and the Project Partnership have no administrative or management employees and are dependent on the general partners for the management and administration of all partnership activities. The Project Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to general partners of a partnership administration fee and reimbursement of certain expenses incurred by general partners on behalf of the Partnership and the Project Partnership. Transactions with the General Partner and its affiliates are as follows:
1997 TYPE OF TRANSACTION AMOUNT ------------------- ------- Property management fee..................................... $65,846 Reimbursement for services to affiliates.................... $29,742 Construction oversight reimbursements....................... $ 3,456
For the period from January 19, 1996, to August 31, 1997 the Partnership insured its properties under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the General Partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the General Partner by virtue of the agent's obligations was not significant. F-13 360 BAYWOOD PARTNERS, LIMITED CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 361 INDEPENDENT AUDITORS' REPORT General Partners Baywood Partners, Limited: We have audited the consolidated statement of assets, liabilities and partners' deficit -- income tax basis of Baywood Partners, Limited (a limited partnership) and its limited partnership interest as of December 31, 1996, and the related consolidated statements of revenues and expenses and changes in partners' deficit -- income tax basis and cash flows -- income tax basis for the year then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note A, these consolidated financial statements were prepared on the basis of accounting Baywood Partners, Limited uses for Federal income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Baywood Partners, Limited and its limited partnership interest as of December 31, 1996, and the results of their operations and their cash flows for the year then ended, on the basis of accounting described in Note A. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 17, 1997 F-15 362 BAYWOOD PARTNERS, LIMITED CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS ASSETS
DECEMBER 31, 1996 ------------ Cash and cash equivalents: Unrestricted.............................................. $ 476,395 Restricted -- tenant security deposits.................... 33,490 Accounts receivable......................................... 7,199 Escrow for taxes and insurance.............................. 52,064 Restricted escrows (Note B)................................. 94,558 Other assets................................................ 346,115 Investment properties (Note C): Land........................................................ 260,000 Buildings and related personal property..................... 4,490,428 ----------- 4,750,428 Less accumulated depreciation............................... (3,169,691) ----------- 1,580,737 ----------- $ 2,590,558 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 33,019 Tenant security deposits.................................. 33,490 Accrued taxes............................................. -- Other liabilities......................................... 45,507 Mortgage notes payable (Note C)........................... 4,518,594 Partners' deficit........................................... (2,040,052) ----------- $ 2,590,558 ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-16 363 BAYWOOD PARTNERS, LIMITED CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1996 ------------ Revenues: Rental income............................................. $ 1,253,668 Other income.............................................. 71,878 ----------- Total revenues.................................... 1,325,546 ----------- Expenses: Operating (Note D)........................................ 419,654 General and administrative (Note D)....................... 50,012 Maintenance............................................... 171,044 Depreciation.............................................. 83,953 Interest.................................................. 389,778 Property taxes............................................ 42,216 ----------- Total expenses.................................... 1,156,657 ----------- Net income.................................................. 168,889 Distributions to partners................................... (50,352) Partners' deficit at beginning of year...................... (2,158,589) ----------- Partners' deficit at end of year............................ $(2,040,052) ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-17 364 BAYWOOD PARTNERS, LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS -- INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1996 ------------ Cash flows from operating activities: Net income................................................ $ 168,889 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 83,953 Amortization of discounts and loan costs............... 29,113 Change in accounts: Restricted cash...................................... (1,800) Accounts receivable.................................. (5,036) Escrow for taxes and insurance....................... (4,296) Accounts payable..................................... 16,195 Tenant security deposit liabilities.................. 1,800 Accrued taxes........................................ (44,963) Other liabilities.................................... 6,784 --------- Net cash provided by operating activities......... 250,639 --------- Cash flows from investing activities: Property improvements and replacements.................... (185,423) Changes in restricted escrows............................. 61,984 --------- Net cash used in investing activities............. (123,439) --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (53,085) Distributions to partners................................. (50,352) --------- Net cash used in financing activities............. (103,437) --------- Net increase (decrease) in cash............................. 23,763 Cash and cash equivalents at beginning of year.............. 452,632 --------- Cash and cash equivalents at end of year.................... $ 476,395 ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 361,532 =========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-18 365 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of Baywood Partners, Limited (the "Partnership"), and its Limited Partnership interest in Baywood Apartments (the "Project Partnership"). The Partnership was organized solely to invest in the Project Partnership. The Project Partnership owns and operates a 226 unit apartment complex located in Jefferson Parish, Louisiana. The Partnership was organized as an Alabama limited partnership on February 15, 1979. The General Partner of the Partnership is Angeles Properties, Inc. ("API"), which acts as a general partner in other limited partnerships and is an affiliate of Angeles Investment Properties, Inc. ("AIPI"), the general partner of the Project Partnership. Pursuant to the terms of the Agreement and Amended Certificate of Limited Partnership (the "Agreement"), API has contributed $100,000 to the Partnership for which it is entitled to a 1% operating interest in the profits, losses, credits and cash distributions of the Partnership. Capital contributions of the limited partners aggregated $1,936,200. Pursuant to the terms of the Agreement, the limited partners will receive a 99% interest in the operating profits, losses, credits and cash distributions of the Partnership. The Partnership had made capital contributions of $1,442,000 to the Project Partnership and is entitled to a 99% interest in the operating profits, losses, credits and cash distributions of the Project Partnership. AIPI is entitled to the remaining 1% of the same. Basis of Accounting The consolidated financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The consolidated financial statements represent the combination of both the Partnership and Project Partnership's tax returns. The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, (3) syndication costs are carried at their original value, instead of being amortized over the estimated life of assets, and (4) income is recorded at the partnership level based on the partnership agreement and the Internal Revenue Code instead of being recorded based on the percentage of ownership interest. On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. F-19 366 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Depreciation Depreciation is provided in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Under generally accepted accounting principles, the cost of depreciable assets would be allocated systematically over their estimated useful lives. Other Assets Other assets at December 31, 1996 include deferred loan costs of $131,024 which are amortized over the term of the related borrowing. Deferred costs are shown net of accumulated amortization. Also included in other assets at December 31, 1996 are syndication costs of $194,045 which are not amortized. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 were $94,558 and consist of a reserve escrow established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 consist of the following:
1996 ---------- First mortgage note payable in monthly installments of $33,623, including interest at 7.83%, due October 2003; collateralized by land and buildings...................... $4,445,882 Second mortgage note payable in interest only monthly installments of $928, at a rate of 7.83%, with principal due October 2003; collateralized by land and buildings.... 142,290 ---------- Principal balance at year end............................... 4,588,172 Less unamortized discount................................... (69,578) ---------- $4,518,594 ==========
Scheduled net principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997........................................................ $ 57,394 1998........................................................ 62,053 1999........................................................ 67,090 2000........................................................ 72,536 2001........................................................ 78,424 Thereafter.................................................. 4,250,675 ---------- $4,588,172 ==========
F-20 367 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to October 15, 1996. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of payment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership and the Project Partnership have no administrative or management employees and are dependent on the general partners for the management and administration of all partnership activities. The Project Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to general partners of a partnership administration fee and reimbursement of certain expenses incurred by general partners on behalf of the Partnership and the Project Partnership. Transactions with the General Partner and its affiliates are as follows:
1996 TYPE OF TRANSACTION AMOUNT ------------------- ------- Property management fee..................................... $64,690 Reimbursement for services to affiliates.................... $28,914 Construction fee............................................ $ 4,916 Reimbursement for oversight costs........................... $17,784
The Partnership insures its properties under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the General Partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the General Partner by virtue of the agent's obligations is not significant. F-21 368 BAYWOOD PARTNERS, LIMITED CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1995 AND 1994 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-22 369 INDEPENDENT AUDITORS' REPORT General Partners Baywood Partners, Limited: We have audited the consolidated statements of assets, liabilities and partners' deficit -- income tax basis of Baywood Partners, Limited (a limited partnership) and its limited partnership interest as of December 31, 1995 and 1994, and the related consolidated statements of revenues and expenses and changes in partners' deficit -- income tax basis and cash flows -- income tax basis for the years then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note A, these consolidated financial statements were prepared on the basis of accounting Baywood Partners, Limited uses for Federal income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Baywood Partners, Limited and its limited partnership interest as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended, on the basis of accounting described in Note A. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 22, 1996 F-23 370 BAYWOOD PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS ASSETS
DECEMBER 31, ------------------------- 1995 1994 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 452,632 $ 604,724 Restricted-tenant security deposits....................... 31,690 31,090 Accounts receivable......................................... 2,163 2,718 Escrow for taxes............................................ 47,768 44,035 Restricted escrows (Note B)................................. 156,542 279,242 Other assets................................................ 367,173 388,231 Investment properties (Note C): Land...................................................... 260,000 260,000 Buildings and related personal property................... 4,305,005 4,076,146 ----------- ----------- 4,565,005 4,336,146 Less accumulated depreciation............................. (3,085,738) (2,924,559) ----------- ----------- 1,479,267 1,411,587 ----------- ----------- $ 2,537,235 $ 2,761,627 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 16,824 $ 129,201 Tenant security deposits.................................. 31,690 33,207 Accrued taxes............................................. 44,963 -- Other liabilities......................................... 38,723 35,571 Mortgage notes payable (Note C)........................... 4,563,624 4,605,295 Partners' deficit........................................... (2,158,589) (2,041,647) ----------- ----------- $ 2,537,235 $ 2,761,627 =========== ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-24 371 BAYWOOD PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS
YEARS ENDED DECEMBER 31, ------------------------- 1995 1994 ----------- ----------- Revenues: Rental income............................................. $ 1,227,468 $ 1,121,158 Other income.............................................. 70,406 116,372 ----------- ----------- Total revenues.................................... 1,297,874 1,237,530 ----------- ----------- Expenses: Operating................................................. 221,178 311,482 General and administrative (Note D)....................... 42,841 47,220 Property management fees (Note D)......................... 64,085 60,562 Maintenance............................................... 233,885 246,043 Depreciation.............................................. 161,178 113,527 Interest.................................................. 394,004 383,204 Property taxes............................................ 45,132 45,372 ----------- ----------- Total expenses.................................... 1,162,303 1,207,410 ----------- ----------- Loss on disposition of property............................. -- (9,372) ----------- ----------- Net income.................................................. 135,571 20,748 Distributions to partners................................... (252,513) -- Partners' deficit at beginning of year...................... (2,041,647) (2,062,395) ----------- ----------- Partners' deficit at end of year............................ $(2,158,589) $(2,041,647) =========== ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-25 372 BAYWOOD PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS
YEARS ENDED DECEMBER 31, ------------------------- 1995 1994 ----------- ----------- Cash flows from operating activities: Net income................................................ $ 135,571 $ 20,748 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 161,178 113,527 Amortization of discounts and loan costs............... 28,486 34,108 Loss on disposition of property........................ -- 9,372 Change in accounts: Restricted cash...................................... (600) (7,425) Accounts receivable.................................. 555 (1,210) Escrow for taxes..................................... (3,733) 2,049 Other assets......................................... -- (11,290) Accounts payable..................................... (112,377) 123,406 Tenant security deposit liabilities.................. (1,517) 9,542 Accrued taxes........................................ 44,963 (48,771) Other liabilities.................................... 3,152 8,952 --------- --------- Net cash provided by operating activities......... 255,678 253,008 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (228,858) (163,993) Changes in restricted escrows............................. 122,700 142,124 --------- --------- Net cash used in investing activities............. (106,158) (21,869) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (49,099) (45,414) Distributions to partners................................. (252,513) -- --------- --------- Net cash used in financing activities............. (301,612) (45,414) --------- --------- Net (decrease) increase in cash............................. (152,092) 185,725 Cash and cash equivalents at beginning of year.............. 604,724 418,999 --------- --------- Cash and cash equivalents at end of year.................... $ 452,632 $ 604,724 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 365,518 $ 340,319 ========= =========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-26 373 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1995 AND 1994 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of Baywood Partners, Limited (the "Partnership"), and its Limited Partnership interest in Baywood Apartments (the "Project Partnership"). The Partnership was organized solely to invest in the Project Partnership. The Project Partnership owns and operates a 226 unit apartment complex located in Jefferson Parish, Louisiana. The Partnership was organized as an Alabama limited partnership on February 15, 1979. The General Partner of the Partnership is Angeles Properties, Inc. ("API"), which acts as a general partner in other limited partnerships and is an affiliate of Angeles Investment Properties, Inc. ("AIPI"), the general partner of the Project Partnership. Pursuant to the terms of the Agreement and Amended Certificate of Limited Partnership (the "Agreement"), API has contributed $100,000 to the Partnership for which it is entitled to a 1% operating interest in the profits, losses, credits and cash distributions of the Partnership. Capital contributions of the limited partners aggregated $1,936,200. Pursuant to the terms of the Agreement, the limited partners will receive a 99% interest in the operating profits, losses, credits and cash distributions of the Partnership. The Partnership had made capital contributions of $1,442,000 to the Project Partnership and is entitled to a 99% interest in the operating profits, losses, credits and cash distributions of the Project Partnership. AIPI is entitled to the remaining 1% of the same. Basis of Accounting The consolidated financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The consolidated financial statements represent the combination of both the Partnership and Project Partnership's tax returns. The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, (3) syndication costs are carried at their original value, instead of being amortized over the estimated life of assets, and (4) subsidiary income is recorded at the partnership level based on the partnership agreement and the Internal Revenue Code instead of being recorded based on the percentage of ownership interest. On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. F-27 374 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Depreciation Depreciation is provided for in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Under generally accepted accounting principles, the cost of depreciable assets would be allocated systematically over their estimated useful lives. Other Assets Other assets at December 31, 1995 and 1994 include deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Also included in other assets at December 31, 1995 and 1994 are $194,045 of syndication costs which are not amortized. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers cash and all highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Reclassifications Certain 1994 amounts have been reclassified to conform to the 1995 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1995 and 1994 consist of the following:
1995 1994 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements are anticipated to be completed in calendar year 1996 and any excess funds will be returned for property operations................................... $ 65,883 $187,808 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 90,659 91,434 -------- -------- $156,542 $279,242 ======== ========
F-28 375 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1995 and 1994 consist of the following:
1995 1994 ---------- ---------- First mortgage note payable in monthly installments of $33,623, including interest at 7.83%, due October 2003; collateralized by land and buildings...................... $4,498,967 $4,548,066 Second mortgage note payable in interest only monthly installments of $928, at a rate of 7.83%, with principal due October 2003; collateralized by land and buildings.... 142,290 142,290 ---------- ---------- Principal balance at year end............................... 4,641,257 4,690,356 Less unamortized discount................................... (77,633) (85,061) ---------- ---------- $4,563,624 $4,605,295 ========== ==========
Scheduled net principal payments of the mortgage notes during the years subsequent to December 31, 1995 are as follows: 1996........................................................ $ 53,085 1997........................................................ 57,394 1998........................................................ 62,053 1999........................................................ 67,090 2000........................................................ 72,536 Thereafter.................................................. 4,329,099 ---------- $4,641,257 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to October 15, 1996. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of payment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-29 376 BAYWOOD PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership and the Project Partnership have no administrative or management employees and are dependent on the general partners for the management and administration of all partnership activities. The Project Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to general partners of a partnership administration fee and reimbursement of certain expenses incurred by general partners on behalf of the Partnership and the Project Partnership. Transactions with the General Partner and its affiliates are as follows:
1995 1994 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Property management fee..................................... $64,085 $60,562 Reimbursement for services to affiliates.................... $23,475 $25,620 Construction fee............................................ $17,784 $ --
The Partnership insures its properties under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the General Partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the General Partner by virtue of the agent's obligations is not significant. F-30 377 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 378 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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-2 379 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 September , 1998 A-3 380 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998 AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF BRAMPTON ASSOCIATES 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 381 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 Brampton Associates 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-61 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71 YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72
i 382
PAGE ---- Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-72 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions and Transfers of Units......... S-77
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 383 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 Brampton Associates 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 $3,972 million total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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-1 384 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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-2 385 - 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 $2,760.04 per unit for the six months ended June 30, 1998 (equivalent to $5,520.08 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 distributions of $ 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 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 S-3 386 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 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-4 387 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 100% of 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? 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: 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-5 388 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-6 389 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. 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. 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 5 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. 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 S-7 390 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 391 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 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 S-9 392 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 393 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, 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. 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 S-11 394 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 66 2/3% of the units of your partnership. In the absence of such consent, your only 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners or from other sources. 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 S-12 395 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. 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. S-13 396 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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-14 397 - 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 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 S-15 398 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 represents the closing price of AIMCO's Class A Common Stock on the NYSE on a recent date before we commenced this offer. S-16 399 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 400 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 is not subject to such limitations. 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives such compensation as is set forth in your partnership's agreement of limited partnership or in other agreements executed between the general partner and your partnership that are permitted by your partnership's agreement of limited partnership and may also receive reimbursement for expenses generated in its capacity as general partner of your partnership. The property manager received management fees of $81,698 in 1996, $92,384 in 1997 and $46,023 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 Your Partnership and its Property. Brampton Associates Partnership is a Connecticut limited partnership which was formed on December 31, 1985 for the purpose of owning and operating a single apartment property located in Cary, North Carolina, known as "Brampton Moors Apartments." In 1985, it completed a S-18 401 private placement of units. Brampton Moors Apartments consists of 224 apartment units. Your partnership has no employees. Property Management. Since December 1996, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2040, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $7,438,225, payable to First Union and Lehman, which bears interest at a rate of 8.47%. The mortgage debt is due in June 2004. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-19 402 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, 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-20 403
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) 23,764 14,453 12,513 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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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-21 404 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 405
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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-23 406 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 407 SUMMARY FINANCIAL INFORMATION OF BRAMPTON ASSOCIATES PARTNERSHIP The summary financial information of Brampton Associates Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Brampton Associates Partnership for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on 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 of Your Partnership" included herein. See "Index to Financial Statements." BRAMPTON ASSOCIATES PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... 887,276 889,937 1,839,610 1,768,692 1,780,701 0 0 Net Income/(Loss)............ (33,415) 29,158 (27,197) (282,970) (161,509) 0 0 BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... 4,084,686 4,384,457 4,231,250 4,541,896 4,831,198 0 0 Total Assets................. 5,416,740 6,327,699 5,646,487 5,839,743 6,123,150 0 0 Mortgage Notes Payable, including Accrued Interest................... 7,473,467 7,530,090 7,472,082 7,020,157 7,071,360 0 0 Partners' Capital/(Deficit).......... (2,174,471) (1,279,962) (1,991,055) (1,313,858) (1,030,889) 0 0
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $2,760.04 Not available
S-25 408 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 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 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. However, your general partner believes that the terms of our offer, including the offer consideration, are fair to you. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our cash 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 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. S-26 409 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 Code. 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 therefore 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 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. 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 S-27 410 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 $2,760.04 per unit (equivalent to $5,520.08 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 an 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 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. 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. S-28 411 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 412 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 66 2/3% of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners or from other sources. 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. S-30 413 - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred 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 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. - 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-31 414 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 415 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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-33 416 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. 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. S-34 417 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." 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. 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. S-35 418 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, (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 9:00 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 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, Denver, Colorado time. S-36 419 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 420 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. 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 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 S-38 421 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 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 S-39 422 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 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 423 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. 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. 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-41 424 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-42 425 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 payment. 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 OP Units and any such S-43 426 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-44 427 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-45 428 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-46 429 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-47 430 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-48 431 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-49 432 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 433 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-51 434 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 435 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 436 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 437 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 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, a third party expert, 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 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 $2,760.04 (equivalent to $5,520.08 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-55 438 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-56 439 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. 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-57 440 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-58 441 performed a site inspection 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 September 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 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 property was 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 S-59 442 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. S-60 443 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 $9,000 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-61 444 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 Connecticut law for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Brampton Moors Apartments. 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 Receipts (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 2040. 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, owning, developing and operating your conduct any business that may be lawfully conducted by partnership's property. Subject to restrictions a limited partnership organized pursuant to the contained in your partnership's agreement of limited Delaware Revised Uniform Limited Partnership Act (as partnership, your partnership may perform any acts to amended from time to time, or any successor to such accomplish the foregoing including, without limitation, statute) (the "Delaware Limited Partnership Act"), borrowing funds 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-62 445 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 53,875 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 for your partnership's agreement of partners, on terms and conditions and for such capital limited partnership. The capital contribution need not contributions as may be established by the general 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 may employ from time to time The AIMCO Operating Partnership may lend or contribute affiliates or limited partners for the operation, funds or other assets to its subsidiaries or other management, supervision, maintenance, sale or financing persons in which it has an equity investment, and such of your partnership's property on such terms and for persons may borrow funds from the AIMCO Operating such compensation as the general partner may determine. Partnership, on terms and conditions established in the The general partner of your partnership, its affiliates sole and absolute discretion of the general partner. To and any limited partner may make loans to your the extent consistent with the business purpose of the partnership. Such loans must be evidenced by unsecured AIMCO Operating Partnership and the permitted promissory notes of your partnership, bearing interest activities of the general partner, the AIMCO Operating at a rate which is the lesser of 1% per annum in excess Partnership may transfer assets to joint ventures, of the prime commercial lending rate of Chemical Bank, limited liability companies, partnerships, New York, New York or such other major New York bank corporations, business trusts or other business designated by the general partner or the maximum rate entities in which it is or thereby becomes a permitted by law. Repayment of such loans are participant upon such terms and subject to such subordinated to the prior payment of all other conditions consistent with the AIMCO Operating Part- partnership obligations and expenses, except nership Agreement and applicable law as the general distributions to the partners, and will be repaid out partner, in its sole and absolute discretion, believes of, and be considered a first charge on, Net Cash to be advisable. Except as expressly permitted by the Receipts or capital contributions of the limited AIMCO Operating Partnership Agreement, neither the partners. 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 finance all or any of the activities of your restrictions on borrowings, and the general partner has partnership authorized under the provisions of your full power and authority to borrow money on behalf of partnership's agreement of limited partnership by the AIMCO Operating Partnership. The AIMCO Operating secured or unsecured indebtedness, with or without Partnership has credit agreements that restrict, among recourse, and, in connection therewith, issue evidences other things, its ability to incur indebtedness. See of indebtedness and execute and deliver notes, "Risk Factors -- Risks of Significant Indebtedness" in mortgages, mortgage deeds and other security the accompanying Prospectus. instruments of every nature and kind as security there- fore. However, if the opinion of counsel is obtained that the following action does not constitute control of your partnership by the limited partners or will result in the treatment of your partnership as an association for tax purposes, the consent of the limited partners holding 66 2/3% of the outstanding units is required to refinance or mortgage all or substantially all of your partnership's property. Such consent will be presumed unless the general
S-63 446 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partner receives a written notice from a limited partner withholding its consent within 30 days of the notice to the limited partners regarding the transaction. If an opinion of counsel cannot be obtained, the consent of the limited partners will not be required.
Review of Investor Lists Your partnership's agreement of limited partnership Each OP Unitholder has the right, upon written demand provides that the books and records of your partnership with a statement of the purpose of such demand and at are available for reasonable inspection and examination such OP Unitholder's own expense, to obtain a current by the partners or their duly authorized agents at the list of the name and last known business, residence or principal place of business of your partnership. mailing address of the general partner and each other OP Unitholder.
Management Control Subject to the provisions of your partnership's All management powers over the business and affairs of agreement of limited partnership, the general partner the AIMCO Operating Partnership are vested in AIMCO-GP, of your partnership has the sole and full authority and Inc., which is the general partner. No OP Unitholder power to carry on the business of your partnership, has any right to participate in or exercise control or including the execution of all contracts and documents management power over the business and affairs of the on behalf of and in the name of your partnership. No AIMCO Operating Partnership. The OP Unitholders have limited partner may take part in or interfere in any the right to vote on certain matters described under manner with, the conduct or control or your partnership "Comparison of Ownership of Your Units and AIMCO OP business nor does any limited partner have any right or Units -- Voting Rights" below. The general partner may authority to act on behalf of or bind your partnership. 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 has no liability to the AIMCO Operating Partnership Agreement, the general your partnership or to any partner for any loss partner is not liable to the AIMCO Operating suffered by your partnership or any partner which Partnership for losses sustained, liabilities incurred arises out of any action or inaction of the general or benefits not derived as a result of errors in partner if the general partner determines, in good judgment or mistakes of fact or law of any act or faith, such course of conduct was in the best interests omission if the general partner acted in good faith. of 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 partner. In addition, your partnership will indemnify AIMCO (in its capacity as the previous general partner the general partner and its affiliates against any of the AIMCO Operating Partnership), the general losses, judgments, liabilities, expenses and amounts partner, any officer or director of general partner or paid in settlement, sustained by it in connection with the AIMCO Operating Partnership and such other persons your partnership, provided that the general partner as the general partner may designate from and against determines that such course of conduct was in the best all losses, claims, damages, liabilities, joint or interests of your partnership and that such course of several, expenses (including legal fees), fines, conduct did not constitute negligence or misconduct on settlements and other amounts incurred in connection the part of the general
S-64 447 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partner or its affiliates. Notwithstanding the with any actions relating to the operations of the foregoing, the general partner and its affiliates, AIMCO Operating Partnership, as set forth in the AIMCO acting as broker-dealers will not be indemnified for Operating Partnership Agreement. The Delaware Limited any losses, liabilities or expenses arising under the Partnership Act provides that subject to the standards Federal or states securities laws unless: (1) there has and restrictions, if any, set forth in its partnership been a successful adjudication on the merits of each agreement, a limited partnership may, and shall have count involving alleged securities law violations, (2) 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 a court of jurisdiction or (3) a court of demands whatsoever. It is the position of the competent jurisdiction approves a settlement of such Securities and Exchange Commission that indemnification claims. In such claim for indemnification for Federal of directors and officers for liabilities arising under or state securities law violations, the party seeking the Securities Act is against public policy and is 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 of 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, if the opinion of counsel is obtained that has exclusive management power over the business and the following actions do not constitute control of your affairs of the AIMCO Operating Partnership. The general partnership by the limited partners or result in the partner may not be removed as general partner of the treatment of your partnership as an association for tax AIMCO Operating Partnership by the OP Unitholders with purposes, the general partner of your partnership may or without cause. Under the AIMCO Operating Partnership be removed upon the written consent or affirmative vote Agreement, the general partner may, in its sole of the limited partners owning a majority of discretion, prevent a transferee of an OP Unit from outstanding units and the general partner may withdraw becoming a substituted limited partner pursuant to the from your partnership with the consent of a majority in AIMCO Operating Partnership Agreement. The general interest of the limited partners. If an opinion of partner may exercise this right of approval to deter, counsel cannot be obtained, the consent of the limited delay or hamper attempts by persons to acquire a partners for the withdrawal of the general partner from controlling interest in the AIMCO Operating Partner- your partnership will not be required. A limited ship. Additionally, the AIMCO Operating Partnership partner may not transfer his interests in your Agreement contains restrictions on the ability of OP partnership without the consent of the general partner, Unitholders to transfer their OP Units. See which may be granted or withheld in its sole "Description of OP Units -- Transfers and Withdrawals" discretion. in the accompanying Prospectus.
Amendment of Your Partnership Agreement If the opinion of counsel is obtained that the With the exception of certain circumstances set forth following action does not constitute control of your in the AIMCO Operating Partnership Agreement, whereby partnership by the limited partners or result in the the general partner may, without the consent of the OP treatment of your partnership as an association for tax Unitholders, amend the AIMCO Operating Partnership purposes, the limited partners holding 66 2/3% of the Agreement, amendments to the AIMCO Operating then outstanding units may amend your partnership's Partnership Agreement require the consent of the agreement of limited partnership. However, any holders of a majority of the outstanding Common OP amendment which adversely affects the rights of a Units, excluding AIMCO and certain other limited partner may not be made without the consent of the exclusions (a "Majority in Interest"). Amendments to affected partner. Additionally, no amendment may be the AIMCO Operating Partnership Agreement may be made which alters or modifies the distributions proposed by the general partner or by holders of a allocable to each partner, adversely affects the Majority in Interest. Following such proposal, the classification of your partnership as a partnership for general partner will submit any proposed amendment to Federal tax purposes or increases the potential Federal the OP Unitholders. The general partner will seek the tax liabilities of any partner. Any amendment which written consent of the OP Unitholders on the proposed modifies the voting requirement of any section of your amendment or will call a meeting to vote thereon. See partnership's agreement of limited partnership must be "Description of OP Units -- Amendment of the AIMCO approved by all limited partners. The general partner Operating Partnership Agreement" in the accompanying may amend your partnership's agreement of limited Prospectus. partnership necessary to reflect any changes which the general partner feels is necessary or advisable to preserve the tax status of your partnership as a partnership and any other change of a technical or ministerial nature which does not materially adversely affect the rights of or increase the obligations of the limited partners.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives such compensation as is set forth in your capacity as general partner of the AIMCO partner-
S-65 448 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship's agreement of limited partnership or in other Operating Partnership. In addition, the AIMCO Operating agreements executed between the general partner and Partnership is responsible for all expenses incurred your partnership that are permitted by your relating to the AIMCO Operating Partnership's ownership partnership's agreement of limited partnership. of its assets and the operation of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership and reimburses the general partner for such be entitled to compensation for additional services expenses paid by the general partner. The employees of rendered. 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, the liability of any limited partner to negligence, no OP Unitholder has personal liability for provide funds or any other property to your partnership the AIMCO Operating Partnership's debts and is limited to the amount of capital contributions, plus obligations, and liability of the OP Unitholders for any accrued interest thereon, which such limited the AIMCO Operating Partnership's debts and obligations partner is required to make pursuant to your is generally limited to the amount of their invest- partnership's agreement of limited partnership. Subject ment in the AIMCO Operating Partnership. However, the to applicable law, the limited partners have no further limitations on the liability of limited partners for liability to contribute money to your partnership for, the obligations of a limited partnership have not been or in respect of, the liabilities or obligations of clearly established in some states. If it were your partnership, and will not be personally liable for determined that the AIMCO Operating Partnership had any obligations of your partnership. However, if a been conducting business in any state without compli- limited partner receives the return in whole or in part ance with the applicable limited partnership statute, of its capital contribution it may be liable to your or that the right or the exercise of the right by the partnership for any sum, not in excess of such return, holders of OP Units as a group to make certain with interest, to the extent required by applicable amendments to the AIMCO Operating Partnership Agreement law, necessary to discharge certain of your or to take other action pursuant to the AIMCO Operating partnership's liabilities to creditors. 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 Your partnership's agreement of limited partnership Unless otherwise provided for in the relevant provides that the general partner must use its best partnership agreement, Delaware law generally requires efforts to cause your partnership to observe and a general partner of a Delaware limited partnership to perform each and every obligation to be observed and adhere to fiduciary duty standards under which it owes performed by your partnership under all agreements and its limited partners the highest duties of good faith, undertakings made by your partnership or by which your fairness and loyalty and which generally prohibit such partnership is bound and to do all things which may be general partner from taking any action or engaging in necessary in order to conduct the affairs and business any transaction as to which it has a conflict of of your partnership. The general partner must devote so interest. The AIMCO Operating Partnership Agreement much of its time as the general partner, in its sole expressly authorizes the general partner to enter into, discretion, deems necessary to manage the affairs of on behalf of the AIMCO Operating Partnership, a right your partnership and use its best efforts to conduct of first opportunity arrangement and other conflict the affairs of your partnership in accordance with your avoidance agreements with various affiliates of the partnership's agreement of limited partnership and AIMCO Operating Partnership and the general partner, on applicable laws. However, the general partner is not such terms as the general partner, in its sole and obligated to use its own funds to pay for partnership absolute discretion, believes are advisable. The AIMCO expenses and may retain, at the expense of your Operating Partnership Agreement expressly limits the partnership, one or more of its affiliates or others to liability of the general partner by providing that the supervise partnership activities. Each of the partners general partner, and its officers and directors will and their affiliates may engage in or possess an not be liable or accountable in damages to the AIMCO interest in other business ventures of any nature and Operating Partnership, the limited partners or description, including, but not limited to, those assignees for errors in judgment or mistakes of fact or competitive with the operations and business of your law or of any act or omission if the general partner or partnership and the real estate business in all its such director or officer acted in good faith. See phases, including, without limitation, ownership, "Description of OP Units -- Fiduciary Responsibilities" operation, management, syndication and development of in the accompanying Prospectus. real property and neither your partnership nor the partners will have any rights in or to such independent ventures or the income or profits derived therefrom.
S-66 449 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Federal Income Taxation There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-67 450 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Voting Rights If the opinion of counsel is Except as otherwise required by Under the AIMCO Operating Partner- obtained that the following actions applicable law or in the AIMCO ship Agreement, the OP Unitholders does not constitute control of your Operating Partnership Agreement, have voting rights only with partnership by the limited partners the holders of the Preferred OP respect to certain limited matters or will not adversely affect your Units will have the same voting such as certain amendments and partnership's classification as a rights as holders of the Common OP termination of the AIMCO Operating partnership for tax purposes, the Units. See "Description of OP Partnership Agreement and certain consent of the limited partners Units" in the accompanying transactions such as the holding 66 2/3% of the out- Prospectus. So long as any institution of bankruptcy standing units is required to Preferred OP Units are outstand- proceedings, an assignment for the refinance, sell, exchange grant an ing, in addition to any other vote benefit of creditors and certain option for sale, exchange, convey, or consent of partners required by transfers by the general partner of mortgage, convey title to all or law or by the AIMCO Operating its interest in the AIMCO Operating substantially all of your partner- Partnership Agreement, the Partnership or the admission of a ship's property, which consent will affirmative vote or consent of successor general partner. be presumed to be given unless holders of at least 50% of the notice is received by the general outstanding Preferred OP Units will Under the AIMCO Operating Partner- partner from the limited partner to be necessary for effecting any ship Agreement, the general partner the contrary within thirty days of amendment of any of the provisions has the power to effect the the notice of such transactions and of the Partnership Unit Desig- acquisition, sale, transfer, amend your partnership's agree- nation of the Preferred OP Units exchange or other disposition of ment of limited partnership. Such that materially and adversely any assets of the AIMCO Operating consent is also required to amend affects the rights or preferences Partnership (including, but not your partnership's agreement of of the holders of the Preferred OP limited to, the exercise or grant limited partnership, subject to Units. The creation or issuance of of any conversion, option, certain exceptions. Upon the any class or series of partnership privilege or subscription right or satisfaction of the preceding units, including, without any other right available in conditions, the limited partners limitation, any partnership units connection with any assets at any holding a majority of the units may that may have rights senior or time held by the AIMCO Operating remove the general partner and superior to the Preferred OP Units, Partnership) or the merger, consent to the withdrawal of a shall not be deemed to materially consolidation, reorganization or general partner. If opinion cannot adversely affect the rights or other combination of the AIMCO be obtained, the general partner preferences of the holders of Operating Partnership with or into may refinance your partnership's Preferred OP Units. With respect to another entity, all without the property, withdraw from your the exercise of the above de- consent of the OP Unitholders. partnership and amend your scribed voting rights, each partnership's agreement of limited Preferred OP Units shall have one The general partner may cause the partnership without the consent of (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating the limited partners. An Partnership by an "event of affirmative vote by holders of a withdrawal," as defined in the majority of the outstanding units Delaware Limited Partnership Act is necessary for your partnership (including, without limitation, to engage in any business other bankruptcy), unless, within 90 days than as set forth in your partner- after the withdrawal, holders of a ship's agreement of limited "majority in interest," as defined partnership. in the Delaware Limited Partnership Act, agree in writing, in their A general partner may cause the sole and absolute discretion, to dissolution of your partnership by continue the business of the AIMCO retiring when there is no remaining Operating Partnership and to the general partner. In such event, all appointment of a successor general of the limited partners may vote to partner. The general partner may continue your partnership within 90 elect to dissolve the AIMCO days of such retirement and may Operating Partnership in its sole unanimously elect a substitute and absolute discretion, with or general partner. without the consent of the OP Unitholders. See "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
S-68 451 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Distributions The general partner of your Holders of Preferred OP Units will Subject to the rights of holders of partnership annually distributes be entitled to receive, when and as any outstanding Preferred OP Units, substantially all of your declared by the board of directors the AIMCO Operating Partnership partnership's Net Cash Receipts of the general partner of the AIMCO Agreement requires the general with each partner receiving their Operating Partnership, quarterly partner to cause the AIMCO pro rata share in accordance with cash distributions at the rate of Operating Partnership to dis- their ownership of units. Any $ per Preferred OP Unit; tribute quarterly all, or such proceeds received from the sale or provided, however, that at any time portion as the general partner may refinancing of your partnership's and from time to time on or after in its sole and absolute discretion property will be distributed in the fifth anniversary of the issue determine, of Available Cash (as accordance with your partnership's date of the Preferred OP Units, the defined in the AIMCO Operating agreement of limited partnership. 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. Distributions dividend rate on the most recently with respect to such quarter, in of Net Cash Receipts are determined issued AIMCO non-convertible accordance with their respective by the general partner in its sole preferred stock which ranks on a interests in the AIMCO Operating discretion after the end of each of parity with its Class H Cumu- Partnership on such record date. your partnership's fiscal years. No lative Preferred Stock. Such Holders of any other Preferred OP limited partner has priority over distributions will be cumulative Units issued in the future may have any other limited partner as to from the date of original issue. priority over the general partner, distributions or has the right to Holders of Preferred OP Units will the special limited partner and demand or receive property other not be entitled to receive any holders of Common OP Units with than cash as distributions. 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-69 452 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights A limited partner may not transfer There is no public market for the There is no public market for the or assign any or any portion of his Preferred OP Units and the OP Units. The AIMCO Operating Part- interest in his limited partnership Preferred OP Units are not listed nership Agreement restricts the interest unless: (1) the transferor on any securities exchange. The transferability of the OP Units. has designated such intention in a Preferred OP Units are subject to Until the expiration of one year written instrument delivered to the restrictions on transfer as set from the date on which an OP general partner, (2) the general forth in the AIMCO Operating Unitholder acquired OP Units, partner consents in writing, which Partnership Agreement. subject to certain exceptions, such consent may be withheld at the sole OP Unitholder may not transfer all discretion of the general partner, Pursuant to the AIMCO Operating or any portion of its OP Units to (3) the transferee has agreed to be Partnership Agreement, until the any transferee without the consent bound by the terms 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 and (4) the transferor OP Units acquired Preferred OP and absolute discretion. After the and transferee have complied with Units, subject to certain expiration of one year, such OP such other requirements as set exceptions, such holder of Unitholder has the right to forth in your partnership's Preferred OP Units may not transfer transfer all or any portion of its agreement of limited partnership. all or any portion of its Pre- OP Units to any person, subject to No assignment or transfers will be ferred OP Units to any transferee the satisfaction of certain permitted if such assignment or without the consent of the general conditions specified in the AIMCO transfer, when added to the total partner, which consent may be Operating Partnership Agreement, of all units transferred within the withheld in its sole and absolute including the general partner's period of twelve consecutive months discretion. After the expiration of right of first refusal. See prior thereto 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 tax purposes or such transfer would all or any portion of its Preferred accompanying Prospectus. violate Federal or state securities OP Units to any person, subject to law or the rules or regulations of the satisfaction of certain After the first anniversary of any governmental agency or conditions specified in the AIMCO becoming a holder of Common OP authority with jurisdiction over Operating Partnership Agreement, Units, an OP Unitholder has the your partnership's property. including the general partner's right, subject to the terms and right of first refusal. conditions of the AIMCO Operating There are no redemption rights Partnership Agreement, to require associated with your units. 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 general partner may, in its of Class I Cumulative Preferred sole and absolute discretion but Stock of AIMCO that pay an subject to the restrictions on the aggregate amount of dividends yield ownership of Class A Common Stock equivalent to the distributions on imposed under the AIMCO's charter the Preferred OP Units tendered for and the transfer restrictions and redemption and are part of a class other limitations thereof, elect to or series of preferred stock that cause AIMCO to acquire some or all is then listed on the New York of the tendered Common OP Units in Stock Exchange or another national exchange for Class A Common Stock, securities exchange, or (iii) a based on an exchange ratio of one number of shares of Class A Common share of Class A Common Stock for Stock of AIMCO that is equal in each Common OP Unit, subject to Value to the Liquidation Preference adjustment as provided in the AIMCO of the Preferred OP Units tendered Operating 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-70 453 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives such compensation as is set forth in your partnership's agreement of limited partnership or in other agreements executed between the general partner and your partnership that are permitted by your partnership's agreement of limited partnership from your partnership and may receive reimbursement for expenses generated in that capacity. The property manager which received management fees of $ in 1996, $ in 1997 and 46,023 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's 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'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 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-71 454 YOUR PARTNERSHIP GENERAL Brampton Associates Partnership is a Connecticut limited partnership which raised proceeds in 1985 through a private offering. Insignia acquired your partnership in December 1996. AIMCO acquired Insignia in October, 1998. There are currently a total of 53.875 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on December 31, 1985 for the purpose of owning and operating a single apartment property located in Cary, North Carolina, known as "Brampton Moors Apartments." Your partnership's property consists of 224 apartment units. There are 112 one-bedroom apartments and 112 two-bedroom apartments. The total rentable square footage of your partnership's property is 187,600 square feet. Your partnership's property had an average occupancy rate of approximately 89.29% in 1996 and 89.29% in 1997. The average annual rent per apartment unit is approximately $7,878. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1996, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $81,698, $92,384 and $46,023, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2040 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement S-72 455 of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $7,438,225, payable to First Union and Lehman, which bears interest at a rate of 8.47%. The mortgage debt is due in June 2004. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of your partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 456 Below is selected financial information for Brampton Associates Partnership taken from the financial statements described above. See "Index to Financial Statements."
BRAMPTON ASSOCIATES PARTNERSHIP ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- BALANCE SHEET DATA 1998 1997 1997 1996 1995 1994 1993 ------------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents.... $ 373,656 $ 984,043 $ 445,004 $ 571,442 $ 591,693 $ $ Land & Building.............. 10,310,940 10,221,325 10,262,811 10,184,071 10,084,696 Accumulated Depreciation..... (6,226,254) (5,836,868) (6,031,561) (5,642,175) (5,253,498) Other Assets................. 958,398 959,199 970,233 726,405 700,259 0 0 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 5,416,740 $ 6,327,699 $ 5,646,487 $ 5,839,743 $ 6,123,150 $ $ =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... 7,473,467 7,530,090 7,472,082 7,020,157 7,071,360 Other Liabilities............ 117,744 77,571 165,460 133,444 82,679 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... $ 7,591,211 $ 7,607,661 $ 7,637,542 $ 7,153,601 $ 7,154,039 $ 0 $ 0 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $(2,174,471) $(1,279,962) $(1,991,055) $(1,313,858) $(1,030,889) $ $ =========== =========== =========== =========== =========== =========== ===========
BRAMPTON ASSOCIATES PARTNERSHIP ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- STATEMENT OF OPERATIONS 1998 1997 1997 1996 1995 1994 1993 ----------------------- ----------- ----------- ---------- ---------- ---------- ---------- ---------- Rental Revenue..................... $ 843,524 $ 848,042 $1,740,292 $1,676,674 $1,664,647 $ $ Other Income....................... 43,752 41,895 99,318 92,018 116,054 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. $ 887,276 $ 889,937 $1,839,610 $1,768,692 $1,780,701 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 361,343 338,932 795,880 798,209 724,121 General & Administrative........... 0 0 Depreciation....................... 194,693 194,693 389,386 388,677 380,692 Interest Expense................... 315,727 294,482 587,953 767,081 744,746 Property Taxes..................... 48,928 32,672 93,588 97,695 92,651 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ $ 920,691 $ 860,779 $1,866,807 $2,051,662 $1,942,210 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income......................... $ (33,415) $ 29,158 $ (27,197) $ (282,970) $ (161,509) $ 0 $ 0 ========== ========== ========== ========== ========== ========== ==========
S-74 457 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized a net loss of $33,415 for the six months ended June 30, 1998, compared to net income of $29,158 for the six months ended June 30, 1997. The decrease in net income of $62,573, or 214.60% was primarily the result of an increase in interest expense as well as increase in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $887,276 for the six months ended June 30, 1998, compared to $889,937 for the six months ended June 30, 1997, a decrease of $2,661, or 0.30%. Expenses Operating expenses consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $361,343 for the six months ended June 30, 1998, compared to $338,932 for the six months ended June 30, 1997. The increase of $22,411 or 6.61% is primarily due to higher maintenance expenses and rental concessions during the six months ended June 1997. Management expenses totaled $46,023 for the six months ended June 30, 1998, compared to $45,144 for the six months ended June 30, 1997, an increase of $879, or 1.95%. General and Administrative Expenses Not Applicable. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $315,727 for the six months ended June 30, 1998, compared to $294,482 for the six months ended June 30, 1997, an increase of $21,245, or 7.21%. The increase resulted from the refinancing of the loan in May 1997. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $27,197 for the year ended December 31, 1997, compared to a net loss of $282,970 for the year ended December 31, 1996. The increase in net income of $255,773, or 90.39% was primarily the result of lower interest expense and increased revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,839,610 for the year ended December 31, 1997, compared to $1,768,692 for the year ended December 31, 1996, an increase of $70,918, or 4.01%. S-75 458 Expenses Operating expenses consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $795,880 for the year ended December 31, 1997, compared to $798,209 for the year ended December 31, 1996, a decrease of $2,329 or 0.29%. Management expenses totaled $92,384 for the year ended December 31, 1997, compared to $89,291 for the year ended December 31, 1996, an increase of $3,093, or 3.46%. General and Administrative Expenses Not Applicable. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $587,953 for the year ended December 31, 1997, compared to $767,081 for the year ended December 31, 1996, a decrease of $179,128, or 23.35%. The decrease resulted from refinancing the mortgage at a lower interest rate in May 1997. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $282,970 for the year ended December 31, 1996, compared to a net loss of $161,509 for the year ended December 31, 1995. The decrease in net income of $121,461, or 75.20% was primarily the result of decreased revenues coupled with increased operating and interest expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,768,692 for the year ended December 31, 1996, compared to $1,780,701 for the year ended December 31, 1995, a decrease of $12,009, or 0.67%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $798,209 for the year ended December 31, 1996, compared to $724,121 for the year ended December 31, 1995, an increase of $74,088 or 10.23%. The increase is primarily due to increased advertising and maintenance expenses. Management expenses totaled $89,291 for the year ended December 31, 1996, compared to $89,077 for the year ended December 31, 1995, an increase of $214, or 0.24%. General and Administrative Expenses Not Applicable. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $767,081 for the year ended December 31, 1996, compared to $744,746 for the year ended December 31, 1995, an increase of $22,335, or 3.00%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $373,656 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on S-76 459 outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 has no liability to your partnership or to any partner for any loss suffered by your partnership or any partner which arises out of any action or inaction of the general partner if the general partner determines, in good faith, 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 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 owned by AIMCO. See "Conflicts of Interest." Your partnership will indemnify the general partner and its affiliates against any losses, judgments, liabilities, expenses and amounts paid in settlement, sustained by it in connection with your partnership, provided that the general partner determines that such course of conduct was in the best interests of your partnership and that such course of conduct did not constitute negligence or misconduct on the part of the general partner or its affiliates. Notwithstanding the foregoing, the general partner and its affiliates, acting as broker-dealers will not be indemnified for any losses, liabilities or expenses arising under the Federal or states securities laws unless: (1) there has been a successful adjudication on the merits of each count involving alleged securities law violations, (2) such claims have been dismissed with prejudice on the merits by a court of jurisdiction or (3) a court of competent jurisdiction approves a settlement of claims. In such claim for indemnification for Federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect of the issue of indemnification for securities law violations. The general partner or its affiliates will have advanced to them by your partnership, at their request, funds for payment of all expenses and costs reasonably incurred in connection with the defense of any action, suit or proceeding only if (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, without interest, if it is determined that a general partner or its affiliates are not entitled to indemnification. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership will not incur the cost of that portion of any insurance, other than public liability insurance, which insures any party against any liability the indemnification of which is not permitted under your partnership's agreement of limited partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ Not Available 1995........................................................ Not Available 1996........................................................ Not Available 1997........................................................ $11,851.15 1998 (through June 30)...................................... 2,760.04
S-77 460 Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0.00% 0 1995......................... 0 0.00% 0 1996......................... 0 0.00% 0 1997......................... 1 1.86% 2 1998 (through June 30)....... 0 0.00% 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ Not Available 1995........................................................ Not Available 1996........................................................ Not Available 1997........................................................ Not Available
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................................ 89,077 1996........................................................ 81,698 1997........................................................ 92,384 1998 (through June 30)...................................... 46,023
S-78 461 If the offer had been made in such prior periods, there would not have been any material difference in the compensation and distributions that would have been paid to the general partner of your partnership, or the company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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. S-79 462 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet -- Income Tax Basis as of June 30, 1998 (unaudited).......................................... F-2 Condensed Statements of Income & Expenses -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)............................................... F-3 Condensed Statements of Cash Flows -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Accountant's Review Report...................... F-7 Balance Sheet as of December 31, 1997 (unaudited)........... F-8 Statement of Income & Expenses for the year ended December 31, 1997 -- (unaudited)................................... F-9 Statement of Changes in Partners' Capital (Deficit) -- Income Tax Basis for the year ended December 31, 1997 (unaudited)...................................... F-11 Statement of Cash Flows for the year ended December 31, 1997 (unaudited)............................................... F-12 Notes to Financial Statements............................... F-13 Independent Accountant's Review Report...................... F-18 Balance Sheet as of December 31, 1996 (unaudited)........... F-19 Statement of Income & Expenses for the year ended December 31, 1996 (unaudited)...................................... F-20 Statement of Changes in Partners' Capital (Deficit) --Income Tax Basis for the year ended December 31, 1996 (unaudited)............................................... F-22 Statement of Cash Flows for the year ended December 31, 1996 (unaudited)............................................... F-23 Notes to Financial Statements............................... F-24 Independent Accountant's Review Report...................... F-29 Balance Sheet as of December 31, 1995 (unaudited)........... F-30 Statement of Revenue and Expenses for the year ended December 31, 1995 (unaudited)............................. F-31 Statement of Changes in Partners' Capital (Deficit) --Income Tax Basis for the year ended December 31, 1995 (unaudited)............................................... F-33 Statement of Cash Flows for the year ended December 31, 1995 (unaudited)............................................... F-34 Notes to Financial Statements............................... F-35
F-1 463 BRAMPTON ASSOCIATES CONDENSED BALANCE SHEET (UNAUDITED) INCOME TAX BASIS JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 373,656 Receivables and Deposits.................................... 1,053 Restricted Escrows.......................................... 102,194 Syndication Fees............................................ 544,553 Other Assets................................................ 310,598 Investment Property: Land...................................................... 1,456,918 Building and related personal property.................... 8,854,022 ----------- 10,310,940 Less: Accumulated depreciation............................ (6,226,254) 4,084,686 ----------- ----------- Total Assets...................................... $ 5,416,740 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ -- Other Accrued Liabilities................................... (117,744) Property taxes payable...................................... -- Tenant security deposits.................................... -- Notes Payable............................................... (7,473,467) Partners' Capital........................................... 2,174,471 ----------- Total Liabilities and Partners' Capital........... $(5,416,740) ===========
F-2 464 BRAMPTON ASSOCIATES CONDENSED STATEMENTS OF INCOME & EXPENSES (UNAUDITED) INCOME TAX BASIS
SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 --------- --------- Income: Rental Income............................................. $(843,524) $(848,042) Other Income.............................................. (43,752) (41,895) (Gain) Loss on Disposition of Property.................... -- -- Casualty Gain/Loss........................................ -- -- --------- --------- Total Revenues.................................... (887,276) (889,937) Expenses: Operating Expenses........................................ 361,343 338,932 General and Administrative Expenses....................... -- -- Depreciation Expense...................................... 194,693 194,693 Interest Expense.......................................... 315,727 294,482 Property Tax Expense...................................... 48,928 32,672 --------- --------- Total Expenses.................................... 920,691 860,779 (Income) Loss from Operations............................... 33,415 (29,158) Extraordinary Gain on Early Extinguishment of Debt.......... -- -- Loss on Sale of Investment Property......................... -- -- Casualty Gain............................................... -- -- --------- --------- Net (Income) Loss................................. $ 33,415 $ (29,158) ========= =========
F-3 465 BRAMPTON ASSOCIATES CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) INCOME TAX BASIS
SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 --------- ----------- Operating Activities: Net Income (loss)......................................... $ (33,415) $ 29,158 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 194,693 194,693 Loss on Casualty event................................. -- -- Extraordinary loss on refinancing...................... -- -- Changes in accounts: Receivables and deposits and other assets............ 78,050 (23,812) Accounts Payable and accrued expenses................ (47,716) (55,874) --------- ----------- Net cash provided by (used in) operating activities...................................... 191,612 144,165 Investing Activities Property improvements and replacements.................... (48,129) (37,254) Property improvements -- NON-CASH......................... -- -- Proceeds from sale of investments......................... -- -- Collections on notes receivable........................... -- -- Net (increase)/decrease in restricted escrows..... (35,504) -- Net insurance proceeds received from casualty events.......................................... -- -- Dividends received........................................ -- -- --------- ----------- Net cash provided by (used in) investing activities...................................... (83,633) (37,254) Financing Activities Payments on mortgage...................................... (29,327) (6,990,067) Repayment of mortgage..................................... -- -- Prepayment penalties...................................... -- -- Proceeds from refinancing of mortgage..................... -- 7,500,000 Payment of Loan Costs..................................... -- (204,243) Partners' Distributions................................... (150,000) -- --------- ----------- Net cash provided by (used in) financing activities...................................... (179,327) 305,690 --------- ----------- Net increase (decrease) in cash and cash equivalents..................................... (71,348) 412,601 Cash and cash equivalents at beginning of year.............. 445,004 571,442 --------- ----------- Cash and cash equivalents at end of period.................. $ 373,656 $ 984,043 ========= ===========
F-4 466 BRAMPTON ASSOCIATES, L.P. NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Brampton Associates, L.P. as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with the accounting basis for federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis for federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 467 BRAMPTON ASSOCIATES, L.P. FINANCIAL STATEMENTS DECEMBER 31, 1997 F-6 468 March 6, 1998 Brampton Associates, L.P. 5665 Northside Drive N.W. Suite 370 Atlanta, Georgia 30328-5805 We have reviewed the accompanying balance sheets of Brampton Associates, L.P., income tax basis, as of December 31, 1997, and the related statements of income and partners' capital (deficit), income tax basis, for the year then ended, and statement of cash flow, income tax basis, for the year ending December 31, 1997, in accordance with statements on standards for accounting and review services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Brampton Associates, L.P. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. As described in Note 2, these financial statements were prepared on the accounting basis used for income tax purposes and are not intended to be in conformity with generally accepted accounting principles. As described in Note 6 and 8, we were unable to confirm the accrued interest receivable and the Gaincred III note balance at December 31, 1997. Based on our review, we are not aware of any material modification that should be made to the accompanying financial statements in order for them to be in conformity with the basis of accounting described in Note 2. Respectfully submitted, /s/ PORTOCK, BYE & CO. Portock, Bye & Co. Certified Public Accountants F-7 469 BRAMPTON ASSOCIATES, L.P. BALANCE SHEET DECEMBER 31, 1997 ASSETS Current assets Cash in bank.............................................. $ 445,004.41 Rent receivable........................................... 56.41 Escrow -- R.E. tax........................................ 93,709.39 Escrow -- replace. reserves............................... 66,689.91 Prepaid insurance......................................... 5,460.21 -------------- Total current assets.............................. 610,920.33 Property & equipment (Note 4) Land...................................................... 1,456,918.00 Land improvements......................................... 58,881.69 Building.................................................. 7,855,226.00 Building improvements..................................... 74,256.10 Equipment................................................. 45,632.13 Furniture & fixtures...................................... 771,896.94 -------------- Total property & equipment................................ 10,262,810.86 Less: accum. depreciation................................. (6,031,561.00) -------------- Net property & equipment.......................... 4,231,249.86 Other assets Notes rec. -- Ptrs. (Note 6).............................. 60,062.76 Syndication costs (Note 5)................................ 544,553.00 Financing costs (Note 5).................................. 210,247.53 Legal fees (Note 5)....................................... 10,475.00 -------------- Total other assets........................................ 825,338.29 Less: accum. amortization................................. (21,021.19) -------------- Total other assets................................ 804,317.10 -------------- Total assets...................................... $ 5,646,487.29 ============== LIABILITIES AND CAPITAL Current liabilities Accounts payable -- trade................................. $ 17,194.17 Accrued expense........................................... 92,765.89 Note pay -- GNCRD III (Note 8)............................ 30,712.50 Mortgage payable (Note 7)................................. 59,498.85 Security deposits payable................................. 15,445.00 Prepaid rent.............................................. 9,343.47 -------------- Total current liabilities......................... 224,959.88 Non-current liabilities Mortgage payable (Note 7)................................. 7,412,582.77 -------------- Total non-current liab. .......................... 7,412,582.77 -------------- Total liabilities................................. 7,637,542.65 Capital Investment -- partner..................................... (1,963,858.80) Net loss year to date..................................... (27,196.56) -------------- Total capital..................................... (1,991,055.36) -------------- Total liabilities & capital....................... $ 5,646,487.29 ==============
See accompanying accountants review letter and accompanying notes to financial statements which are an integral part of the financial statements. F-8 470 BRAMPTON ASSOCIATES, L.P. STATEMENT OF INCOME & EXPENSES
01/01/97 TO 12/31/97 % ------------- ------ Income Rental income............................................. $1,740,292.39 96.08 Misc. income.............................................. 70,956.00 03.92 ------------- ------ Total income...................................... 1,811,248.39 100.00 Operating expenses (Sch I).................................. 1,866,806.90 103.07 ------------- ------ Net operating loss.......................................... (55,558.51) (03.07) Other income Interest earned........................................... 28,361.95 01.57 ------------- ------ Net loss.................................................... $ (27,196.56) (01.50) ============= ======
See accompanying accountants review letter and accompanying notes to financial statements which are an integral part of the financial statements. F-9 471 BRAMPTON ASSOCIATES, L.P. STATEMENT OF INCOME & EXPENSES
01/01/97 TO 12/31/97 % ------------- ------ Operating expenses (Sch I) Advertising & rental...................................... $ 68,580.81 03.79 Amortization.............................................. 21,279.19 01.17 Credit & collection....................................... 966.13 00.05 Depreciation.............................................. 389,386.00 21.50 Dues & subscription....................................... 18,353.85 01.01 Electric.................................................. 28,811.28 01.59 Equipment rental.......................................... 450.50 00.02 Gas....................................................... 2,760.73 00.15 Insurance................................................. 39,284.25 02.17 Interest -- 1st........................................... 561,767.35 31.02 Interest -- other......................................... 26,186.22 01.45 Legal & professional...................................... 5,207.50 00.29 Licenses.................................................. 680.25 00.04 Maintenance............................................... 296,542.89 16.37 Management fees........................................... 96,368.05 05.32 Office expense............................................ 9,652.67 00.53 Payroll reimbursement..................................... 126,009.01 06.96 Payroll tax reimb. ....................................... 10,394.65 00.57 Property admin. exp. ..................................... 12,466.26 00.69 Taxes -- real estate...................................... 93,587.64 05.17 Telephone................................................. 7,625.31 00.42 Water & sewer............................................. 50,446.36 02.79 ------------- ------ Total operating expenses.......................... $1,866,806.90 103.07 ============= ======
See accompanying accountants review letter and accompanying notes to financial statements which are an integral part of the financial statements. F-10 472 BRAMPTON ASSOCIATES, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (INCOME TAX BASIS) DECEMBER 31, 1997 Capital (deficit) -- beginning of year...................... $(1,313,858.41) Less: Net (loss)................................................ (27,196.56) Distributions............................................. (650,000.39) -------------- Capital (deficit) -- end of year............................ $(1,991,055.36) ==============
See accompanying accountants review letter and accompanying notes to financial statements which are an integral part of the financial statements. F-11 473 BRAMPTON ASSOCIATES, L.P. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash flow from operating activities Net loss.................................................. $ (27,196.56) Noncash items included in net income Depreciation........................................... 389,386.00 Amortization........................................... 21,279.19 Changes in: Rent receivable........................................ 4,234.52 Escrow -- R. E. tax.................................... (11,542.87) Escrow -- replace. reserves............................ (66,689.91) Loan receivable........................................ 2,424.00 Prepaid insurance...................................... (5,460.21) Accounts payable -- trade.............................. (29,340.36) Accrued expense........................................ 74,561.28 Security deposits payable.............................. (22,145.16) Prepaid rent........................................... 8,940.93 Notes rec. -- Ptrs. (Note 6)........................... 6,000.00 Financing costs -- net (Note 5)........................ (264,072.26) Legal fees (note 5).................................... 45,000.00 Reinvestment fees (Note 5)............................. 25,000.00 ------------ Total adjustments................................. 177,575.15 ------------ Net cash provided by (used by) operating activities........................................ 150,378.59 Cash flow from investing activities Land improvements......................................... (11,200.00) Building improvements..................................... (37,382.75) Equipment................................................. (13,949.26) Furniture & fixtures...................................... (16,208.27) ------------ Net cash provided by (used by) investing activities........................................ (78,740.28) Cash flow from financing activities Note pay-RFC (Note 9)..................................... (787,529.00) Int. pay-RFC (Note 9)..................................... (104,741.36) Mortgage payable (Note 7)................................. 1,344,194.64 Partners withdraws........................................ (650,000.39) ------------ Net cash provided by (used by) financing activities........................................ (198,076.11) ------------ Net increase (decrease) in cash................... (126,437.80) Cash at beginning of year................................... 571,442.21 ------------ Cash at end of year......................................... $ 445,004.41 ============
See accompanying accountants review letter and accompanying notes to financial statements which are an integral part of the financial statements. F-12 474 BRAMPTON ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 1 -- A. Organization Brampton Associates, L.P. (the "Partnership"), a Connecticut Limited Partnership, was organized on December 17, 1985 to acquire, own, maintain and operate a 224 unit apartment complex known as Brampton Moors (the "Project") located in Cary, North Carolina. B. Purchase by RFC Pursuant to an acquisition agreement dated October 9, 1985, Resources Funding Corp. ("RFC"), an affiliate of the former general partner, agreed to acquire from Westminster Company (the "Seller") the land and the completed improvements for an aggregate purchase price of $10,000,000 with $1,400,000 allocable to the land and $8,600,000 (which was subsequently reduced by $600,000 to $8,000,000 pursuant to a predetermined pricing formula) allocable to the improvements. The portion allocable to the improvements is inclusive of interest at the rate of 16% per annum on certain deferred payments. On December 31, 1985, the Partnership purchased the land for $1,400,000 and simultaneously entered into a one year lease agreement with the Seller which required the Seller to complete the construction of the improvements and to pay $168,000 per annum in rent to the Partnership. Upon completion of the improvements in December 1986, RFC paid $7,300,000 (the "Interim Payment") to the Seller with the balance of $1,300,000 (the "Deferred Payment") payable upon the occurrence of certain events. $700,000 of the Deferred Payment was paid to the Seller on the first anniversary of the Interim Payment. The remaining $600,000 balance of purchase price was not earned by the Seller as the project did not attain certain predetermined performance levels, thus reducing the purchase price. The benefit of such reduction in the purchase price was passed on to the partnership by RFC. C. Purchase from RFC Pursuant to the terms of an assignment and assumption agreement dated December 27, 1985, and a purchase agreement, the Partnership acquired the rights of RFC under the acquisition agreement. The original purchase price (the "Purchase Price") payable to RFC by the Partnership for such rights was $4,080,763, which was reduced to $3,480,763 because of the adjustment to the Purchase Price paid by RFC to the Seller (see Note 1B). The Partnership's obligation to pay the Purchase Price is non-recourse to the general partner and limited partners of the Partnership. A portion of the Purchase Price was paid with the proceeds of the Partnership borrowing from Gaincred III Corp. (see Note 8). The limited partners' notes, together with the collateral securing such notes (including the Project), are pledged to RFC to secure payment of the Purchase Price or to Gaincred III Corp. to secure payment of borrowing by the Partnership (see Note 6). On May 7, 1997, the Partnership refinanced the property (see Note 7) and satisfied the note to RFC. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Partnership are prepared on the accrual basis of accounting, consistent with reporting for federal income tax purposes, and include only those assets, liabilities, and results of operations of the partnership, rather than those of the individual partners. The building and equipment are stated at cost and are being depreciated using the accelerated cost recovery system ("ACRS") for assets placed in service prior to January 1, 1987 and the modified accelerated cost recovery system ("MACRS") for assets placed in service after December 31, 1986. F-13 475 BRAMPTON ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Costs incurred in connection with the sale of the limited partnership units were capitalized and are not being amortized. The income or loss of the Partnership is allocated 1% to the general partner and 99% to the limited partners. There is no provision for income taxes in the financial statements since the income or loss of the Partnership is required to be reported by the partners on their respective income tax returns. NOTE 3 -- CASH AND CASH EQUIVALENTS For purposes of the statement of cash flow, the Partnership considers all highly liquid investment instruments with a maturity of three months or less to be cash equivalents. NOTE 4 -- PROPERTY, EQUIPMENT AND DEPRECIATION Depreciation is recorded at rates calculated to amortize the cost of the assets as follows: Building and equipment...................................... 19 years ACRS Land improvements........................................... 15 years MACRS Appliances -- placed in service prior to 1/1/87............. 5 years ACRS Appliances -- placed in service post 12/31/86............... 7 years 200% declining balance
Land, building, and equipment, with a cost of $10,262,811 are pledged as collateral for the mortgage note payable. The costs of maintenance and repairs of the property and equipment are charged to expense as incurred. NOTE 5 -- DEFERRED EXPENSES Deferred expenses and the related amortization are set forth as follows:
AMORT. ACCUM. UNAMORT. ITEM COST PERIOD AMORT. BALANCE ---- -------- ------- ------- -------- Syndication costs............................ $544,553 N/A N/A $544,553 Financing costs.............................. $210,248 84 mos. $20,024 $190,224 Legal fees................................... $ 10,475 84 mos. $ 997 $ 9,478 -------- ------- -------- $765,276 $21,021 $744,255 ======== ======= ========
The Partnership refinanced the mortgage on May 7, 1997, consequently, the unamortized cost of acquiring the previous mortgage has been fully amortized in 1997. Syndication costs are a nondeductible expense and therefore are not being amortized. NOTE 6 -- NOTES RECEIVABLE (PARTNERS' CAPITAL CONTRIBUTIONS) The notes receivable represent capital contributions from the limited partners. They are payable in quarterly installments of principal and interest over either a four year or a seven year payment schedule, as elected by each partner. The notes are unconditional and negotiable and bear interest at the rate of 11.5% per annum. Interest has not been accrued on these notes for the current year due to the transition of the general partners and the lack of sufficient data available from the former general partner. Integrated Resources, Inc. experienced serious financial difficulties and on February 13, 1990 filed a voluntary petition for reorganization pursuant to the provisions of Chapter 11. Notes receivable have been pledged as collateral to secure the Partnership obligation of the Purchase Price payable to RFC and the note payable to Gaincred III Corp. (See Notes 1C, 8, 9, and 10). F-14 476 BRAMPTON ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7 -- MORTGAGE NOTES PAYABLE The Project was subject to a mortgage held by Legg Mason Real Estate Service Inc. ("Mortgagee") in the original principal amount of $6,400,000. The mortgage required monthly installments of $62,507 (based on a 35 year amortization schedule), including interest at the rate of 11.5% per annum. The mortgage matured on December 1, 1996. On May 7, 1997, the Partnership refinanced the property with Lehman Brothers Holdings Inc., which subsequently sold the mortgage to First Union National Bank of North Carolina. The proceeds of the mortgage were used to satisfy the first and second mortgage as well as the note with Resources Funding Corp ("RFC"). The Partnership borrowed $7,500,000.00 at 8.47% per annum. On June 1, 1997 the Partnership was required to pay a payment of interest only with a constant payment of $57,509.13 commencing on July 1, 1997 and on the first day of each calendar month thereafter to and including the first day of May, 2004. The balance of the principal sum then outstanding and all the interest thereon shall be due and payable on the first day of June, 2004. The Partnership shall not have the privilege or right to prepay all or any portion of the unpaid principal balance of the note until May 31, 2001. Land, building and equipment are pledged as collateral for the above mortgage. NOTE 8 -- NOTE PAYABLE -- GAINCRED III CORP. On December 22, 1988, the Partnership borrowed $1,069,925 from Gaincred III Corp. evidenced by a single limited recourse promissory note. The note bears interest at 12% per annum and is payable from the collections of certain limited partners' notes as specified in the agreement. The proceeds of the borrowing were used to paydown the Purchase Price (see note 1C). The sole security for this obligation is certain limited partners notes and their limited partnership interests. The balance of the note as of December 31, 1997 was unable to be confirmed. However, since the partners notes are the only security for this note, it has an immaterial effect on the financial statements taken as a whole. NOTE 9 -- PURCHASE PRICE AND INTEREST ON PURCHASE PRICE PAYABLE This amount represented the unpaid balance of the purchase price payable to RFC. On May 7, 1997 the balance of the note, along with the accrued interest was satisfied with the proceeds of the refinancing with Lehman Brothers Holdings, Inc. The obligation carried interest from December 31, 1985 at the rate of 14% per annum prior to the Reorganization Plan and 9.5% per annum pursuant to the Reorganization Plan, compounded quarterly (see note 1C). NOTE 10 -- MANAGEMENT FEE The Partnership entered into a management contract with Resources Property Management Corp. ("RPMC"), an affiliate of the general partner. The contract called for a fee of 4% of the gross receipts, as defined in the contract. The management contract with RPMC was terminated effective June 1, 1991. A new management contract was entered into by the Partnership with Drucker & Falk effective June 1, 1991 on similar terms as with RPMC. This contract was terminated effective November 1, 1993. Upon termination of their contract the Partnership owed RPMC $45,169 for their services. However, pursuant to the Reorganization Plan, the amount due to RPMC was reduced to $10,000 which was paid in 1993. On November 1, 1993, a management contract was entered into with NPI Property Management Corp. and in February 1996, Insignia Financial became the new management company. Management fees paid to Insignia Financial for 1997 were $92,384. F-15 477 BRAMPTON ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11 -- PETITION FOR RELIEF UNDER CHAPTER 11 On December 18, 1991, the Partnership filed petitions for relief under Chapter 11 of the United States Bankruptcy Code in the Federal Bankruptcy Court for the Southern District of New York. The Reorganization Plan developed by the Partnership was confirmed by the Federal Bankruptcy Court for the Southern District of New York on September 15, 1992, effective September 30, 1992. Under the Reorganization Plan, certain debts of the Partnership were reduced and the terms of repayment modified as described in Notes 9, 10, and 11. In accordance with the Internal Revenue Code, the reduction of the Purchase Price payable, as described in Note 9 was applied to reduce the basis of the fixed assets, and the reduction of the amounts due to Integrated and its affiliates (Note 11) and RPMC (Note 10) which was recorded as cancellation of debt income in the 1992 financial statements. F-16 478 BRAMPTON ASSOCIATES, L.P. FINANCIAL STATEMENTS DECEMBER 31, 1996 F-17 479 March 19, 1997 Brampton Associates, L.P. 5665 Northside Drive N.W. Suite 370 Atlanta, Georgia 30328-5805 We have reviewed the accompanying balance sheets of Brampton Associates, L.P., income tax basis, as of December 31, 1996, and the related statements of income and partners' capital (deficit), income tax basis, for the year then ended, and statement of cash flow, income tax basis, for the year ending December 31, 1996, in accordance with statements on standards for accounting and review services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Brampton Associates, L.P. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. As described in Note 2, these financial statements were prepared on the accounting basis used for income tax purposes and are not intended to be in conformity with generally accepted accounting principles. As described in Note 6 and 8, we were unable to confirm the accrued interest receivable and the Gaincred III Note Balance at December 31, 1996. Based on our review, we are not aware of any material modification that should be made to the accompanying financial statements in order for them to be in conformity with the basis of accounting described in Note 2. Respectfully submitted, /s/ PORTOCK, BYE & CO. Portock, Bye & Co. Certified Public Accountants F-18 480 BRAMPTON ASSOCIATES, L.P. BALANCE SHEET DECEMBER 31, 1996 ASSETS Current assets Cash in bank.............................................. $ 571,442.21 Rent receivable........................................... 4,290.93 Escrow -- R.E. tax........................................ 82,166.52 Loan receivable........................................... 2,424.00 -------------- Total current assets.............................. 660,323.66 Property & equipment (Note 4) Land...................................................... 1,456,918.00 Land improvements......................................... 47,681.69 Building.................................................. 7,855,226.00 Building improvements..................................... 36,873.35 Equipment................................................. 31,682.87 Furniture & fixtures...................................... 755,688.67 -------------- Total property & equipment................................ 10,184,070.58 Less: accum. depreciation................................. (5,642,175.00) -------------- Net property & equipment.......................... 4,541,895.58 Other assets Notes rec. -- ptrs. (Note 6).............................. 66,062.76 Syndication costs (Note 5)................................ 544,553.00 Financing costs (Note 5).................................. 226,060.27 Legal fees (Note 5)....................................... 55,475.00 Reinvestment fees (Note 5)................................ 25,000.00 -------------- Total other assets........................................ 917,151.03 Less: accum. amortization................................. (279,627.00) -------------- Total other assets................................ 637,524.03 -------------- Total assets...................................... $ 5,839,743.27 ============== LIABILITIES AND CAPITAL Current liabilities Accounts payable -- trade................................. $ 46,534.53 Accrued expense........................................... 18,204.61 Note pay-GNCRD III (Note 8)............................... 30,712.50 Mortgage payable.......................................... 6,127,886.98 Security deposits payable................................. 37,590.16 Prepaid rent.............................................. 402.54 Int. pay-RFC (Note 9)..................................... 104,741.36 -------------- Total current liabilities......................... 6,366,072.68 Non-current liabilities Note pay-RFC (Note 9)..................................... 787,529.00 -------------- Total non-current liab. .......................... 787,529.00 -------------- Total liabilities................................. 7,153,601.68 Capital Investment -- partner..................................... (1,030,888.59) Net loss year to date..................................... (282,969.82) -------------- Total capital..................................... (1,313,858.41) -------------- Total liabilities & capital....................... $ 5,839,743.27 ==============
See accompanying accountants review letter and accompanying notes to financial statements which are an integral part of the financial statements. F-19 481 BRAMPTON ASSOCIATES, L.P. STATEMENT OF INCOME & EXPENSES
01/01/96 TO 12/31/96 % ------------- ------ Income Rental income............................................. $1,676,674.28 96.24 Misc. income.............................................. (92,017.88) 3.76 ------------- ------ Total income...................................... 1,742,163.35 100.00 Operating expenses (Sch I).................................. 2,051,661.98 117.77 ------------- ------ Net operating loss.......................................... (309,498.63) (17.77) Other income Interest earned........................................... (92,017.88) 1.52 ------------- ------ Net loss.......................................... $ (282,969.82) (16.24) ============= ======
See accompanying accountants review letter and accompanying notes to financial statements which are an integral part of the financial statements. F-20 482 BRAMPTON ASSOCIATES, L.P. STATEMENT OF INCOME & EXPENSES
01/01/96 TO 12/31/96 % ------------- ------ Operating expenses (Sch I) Advertising & rental...................................... $ 61,186.53 3.51 Amortization.............................................. 22,821.00 1.31 Credit & collection....................................... 813.45 0.05 Depreciation.............................................. 388,677.00 22.31 Dues & subscription....................................... 22,153.79 1.27 Electric.................................................. 11,563.22 0.66 Equipment rental.......................................... 1,988.64 0.11 Gas....................................................... 1,624.56 0.09 Insurance................................................. 41,056.03 2.36 Interest -- 1st........................................... 718,487.44 41.24 Interest -- 2nd........................................... 48,593.65 2.79 Interest -- other......................................... 75,609.32 4.34 Legal & professional...................................... 17,830.00 1.02 Licenses.................................................. 323.75 0.02 Maintenance............................................... 228,614.65 13.12 Management fees........................................... 92,601.90 5.32 Office expense............................................ 15,716.39 0.90 Payroll reimbursement..................................... 125,444.84 7.20 Payroll tax reimb. ....................................... 10,870.25 0.62 Property admin. exp. ..................................... 5,046.25 0.29 Promotion................................................. 1,019.09 0.06 Taxes -- real estate...................................... 97,694.91 5.61 Taxes -- other............................................ 500.00 0.03 Telephone................................................. 6,054.08 0.35 Water & sewer............................................. 55,371.24 3.18 ------------- ------ Total operating expenses.......................... $2,051,661.98 117.77 ============= ======
See accompanying accountants review letter and accompanying notes to financial statements which are an integral part of the financial statements. F-21 483 BRAMPTON ASSOCIATES, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (INCOME TAX BASIS) DECEMBER 31, 1996 Capital (deficit) -- beginning of year...................... $(1,030,888.59) Net (loss).................................................. $ (282,969.82) -------------- Capital (deficit) -- end of year............................ $(1,313,858.41) ==============
See accompanying accountants review letter and accompanying notes to financial statements which are an integral part of the financial statements. F-22 484 BRAMPTON ASSOCIATES, L.P. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash flow from operating activities Net loss.................................................. $ (282,969.82) Noncash items included in net income Depreciation........................................... 388,677.00 Amortization........................................... 22,821.00 Changes in: Rent receivable........................................ (3,285.18) Escrow -- R.E. tax..................................... (67,784.39) Loan receivable........................................ 280.15 Accounts payable -- trade.............................. 20,404.83 Accrued expense........................................ 18,204.61 Security deposits payable.............................. (1,037.50) Accrued interest pay. ................................. (55,077.71) Prepaid rent........................................... (17,519.51) Notes rec. -- ptrs. (note 6)........................... 5,000.00 Financing costs (note 5)............................... 16,175.27 Legal fees (note 5).................................... 10,475.00 Int. pay-rfc (note 9).................................. 74,815.26 -------------- Total adjustments................................. 358,848.29 -------------- Net cash provided by (used by) operating activities....................................... 75,878.47 Cash flow from investing activities Building improvements..................................... (20,847.65) Equipment................................................. (2,279.00) Furniture & fixtures...................................... (76,247.53) -------------- Net cash provided by (used by) investing activities....................................... (99,374.18) Cash flow from financing activities Mtg. pay-L.M. (note 7).................................... (5,747,239.53) Mtg. pay-society (note 7)................................. (420,874.60) Mortgage payable.......................................... 6,127,886.98 -------------- Net cash provided by (used by) financing activities....................................... (40,227.15) -------------- Net increase (decrease) in cash............................. (63,722.86) Cash at beginning of year................................... 591,693.08 -------------- Cash at end of year......................................... $ 527,970.22 ==============
See accompanying accountants review letter and accompanying notes to financial statements which are an integral part of the financial statements. F-23 485 BRAMPTON ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 1 -- A. Organization Brampton Associates, L.P. (the "Partnership"), a Connecticut limited partnership, was organized on December 17, 1985 to acquire, own, maintain and operate a 224 unit apartment complex known as Brampton Moors (the "Project") located in Cary, North Carolina. B. Purchase by RFC Pursuant to an acquisition agreement dated October 9, 1985, Resources Funding Corp. ("RFC"), an affiliate of the former general partner, agreed to acquire from Westminster Company (the "Seller") the land and the completed improvements for an aggregate purchase price of $10,000,000 with $1,400,000 allocable to the land and $8,600,000 (which was subsequently reduced by $600,000 to $8,000,000 pursuant to a predetermined pricing formula) allocable to the improvements. The portion allocable to the improvements is inclusive of interest at the rate of 16% per annum on certain deferred payments. On December 31, 1985, the partnership purchased the land for $1,400,000 and simultaneously entered into a one year lease agreement with the seller which required the seller to complete the construction of the improvements and to pay $168,000 per annum in rent to the partnership. Upon completion of the improvements in December 1986, RFC paid $7,300,000 (the "Interim Payment") to the seller with the balance of $1,300,000 (the "Deferred Payment") payable upon the occurrence of certain events. $700,000 of the deferred payment was paid to the seller on the first anniversary of the interim payment. The remaining $600,000 balance of purchase price was not earned by the seller as the project did not attain certain predetermined performance levels, thus reducing the purchase price. The benefit of such reduction in the purchase price was passed on to the partnership by RFC. C. Purchase from RFC Pursuant to the terms of an assignment and assumption agreement dated December 27, 1985, and a purchase agreement, the partnership acquired the rights of RFC under the acquisition agreement. The original purchase price (the "Purchase Price") payable to RFC by the partnership for such rights was $4,080,763, which was reduced to $3,480,763 because of the adjustment to the purchase price paid by RFC to the seller (see Note 1B). The partnership's obligation to pay the purchase price is non-recourse to the general partner and limited partners of the partnership. A portion of the purchase price was paid with the proceeds of the partnership borrowing from Gaincred III Corp (see Note 8). The limited partners' notes, together with the collateral securing such notes (including the project), are pledged to RFC to secure payment of the purchase price or to Gaincred III Corp to secure payment of borrowing by the partnership (see Note 6). NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the partnership are prepared on the accrual basis of accounting, consistent with reporting for federal income tax purposes, and include only those assets, liabilities, and results of operations of the partnership, rather than those of the individual partners. The building and equipment are stated at cost and are being depreciated using the Accelerated Cost Recovery System ("ACRS") for assets placed in service prior to January 1, 1987 and the modified Accelerated Cost Recovery System ("MACRS") for assets placed in service after December 31, 1986. Costs incurred in connection with the sale of the limited partnership units were capitalized and are not being amortized. F-24 486 BRAMPTON ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The income or loss of the partnership is allocated 1% to the general partner and 99% to the limited partners. There is no provision for income taxes in the financial statements since the income or loss of the partnership is required to be reported by the partners on their respective income tax returns. NOTE 3 -- CASH AND CASH EQUIVALENTS For purposes of the statement of cash flow, the partnership considers all highly liquid investment instruments with a maturity of three months or less to be cash equivalents. NOTE 4 -- PROPERTY, EQUIPMENT AND DEPRECIATION Depreciation is recorded at rates calculated to amortize the cost of the assets as follows: Building and equipment.................................... 19 years ACRS Land improvements......................................... 15 years MACRS Appliances -- placed in service prior to 1/1/87........... 5 years ACRS Appliances -- placed in service post 12/31/86............. 7 years 200% declining balance
Land, building, and equipment, with a cost of $10,184,071. are pledged as collateral for the mortgage note payable. The costs of maintenance and repairs of the property and equipment are charged to expense as incurred. NOTE 5 -- DEFERRED EXPENSES Deferred expenses and the related amortization are set forth as follows:
AMORT. ACCUM. UNAMORT. ITEM COST PERIOD AMORT. BALANCE - ---- -------- -------- -------- -------- Syndication costs................................. $544,553 N/A N/A $544,553 Financing costs................................... $209,885 120 Mos. $209,885 $ 0 Legal fees........................................ $ 45,000 60 Mos. $ 45,000 $ 0 Reinvest. fees.................................... $ 25,000 82 Mos. $ 24,742 $ 258 -------- -------- -------- $824,438 $279,627 $544,811 ======== ======== ========
In addition, during 1996, legal fees of $10,475 and financing fees of $16,175 were paid as part of the refinancing as discussed in Note 7. These fees have not been subject to amortization until the refinancing is finalized. Syndication costs are a nondeductable expense and therefore are not being amortized. NOTE 6 -- NOTES RECEIVABLE (PARTNERS' CAPITAL CONTRIBUTIONS) The notes receivable represent capital contributions from the limited partners. They are payable in quarterly installments of principal and interest over either a four year or a seven year payment schedule, as elected by each partner. The notes are unconditional and negotiable and bear interest at the rate of 11.5% per annum. Interest has not been accrued on these notes for the current year due to the transition of the general partners and the lack of sufficient data available from the former general partner. Integrated Resources, Inc. experienced serious financial difficulties and on February 13, 1990 filed a voluntary petition for reorganization pursuant to the provisions of Chapter 11. Notes receivable have been pledged as collateral to secure the partnership obligation of the purchase price payable to RFC and the note payable to Gaincred III Corp. (See Notes 1C, 8, 9, and 10). F-25 487 BRAMPTON ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7 -- MORTGAGE NOTES PAYABLE The project was subject to a mortgage held by Legg Mason Real Estate Service Inc. ("Mortgagee") in the original principal amount of $6,400,000. The mortgage required monthly installments of $62,507 (based on a 35 year amortization schedule), including interest at the rate of 11.5% per annum. The mortgage matured on December 1, 1996. The partnership is presently negotiating refinancing with Lehman Brothers. Lehman Brothers is purchasing the mortgage payable to both Legg Mason and Key Bank Society National Bank. As a condition to financing, the partnership was required to supply a letter of credit or to place up to $2 million in escrow, the amount of such funds to decline based on the amount of the shortfall from predetermined property performance levels. If two years from the date of disbursement of the mortgage loan, the project had not yet achieved the predetermined property performance levels, the mortgage loan would be reduced by 95% of the amount then held in escrow drawn under the letter of credit (the remaining 5% to be paid to the lender as a reinvestment fee). RFC had agreed to advance to the partnership the required letter of credit or escrow amount and in the event of a reduction in the mortgage loan and payment of a reinvestment fee to the lender, RFC has agreed to lend the total of such amounts to the partnership on the same conditions as such amounts would have been due under the mortgage loan. However, the partnership, and not RFC, posted the letter of credit. The partnership also posted its demand note as security for nay drawings under the letter of credit and Integrated Resources, Inc. guaranteed the obligation of the partnership in connection with the letter of credit. In 1988, as a result of meeting certain predetermined property performance levels, the amount of the letter of credit was reduced to $500,000. As a result of the project not meeting certain predetermined performance levels, on February 15, 1990, the escrow agent for the holder of the permanent mortgage drew the entire amount of $500,000. Available under the letter of credit. 95% of the drawn amount was applied towards the reduction of principal of the mortgage loan and the remaining 5% of the drawn down amount was paid to Crown Life Insurance Company, the former mortgagee, as a reinvestment fee. Due to a reduction of the remaining principal balance, the mortgagee agreed to reduce the monthly installment payments from $62,507 to $57,835 effective April 1, 1990. The mortgage note can be prepaid in full at a premium as described in the mortgage note. As a result of a drawdown under the letter of credit as described above, the demand note in the amount of $500,000 became payable to Society National Bank ("Society"), (formerly Ameritrust Company National Associates) on February 15, 1990. Pursuant to a plan of reorganization approved by the bankruptcy court under Chapter 11 of the United States Bankruptcy Code ("Reorganization Plan"), the demand note due to Society was converted into a term loan in the amount of $500,000 (the "Second Mortgage"). The second mortgage required monthly payments of $4,491 (based on a 35 year amortization schedule), including interest at the rate of 10.5% per annum and matured on December 1, 1996. The Society Mortgage was part of the refinancing plan as discussed above. Land, building and equipment, carried at a net book value of $4,541,896 are pledged as collateral for the above mortgages as well as the refinancing mortgage. NOTE 8 -- NOTE PAYABLE -- GAINCRED III CORP. On December 22, 1988, the partnership borrowed $1,069,925 form Gaincred III Corp. evidenced by a single limited recourse promissory note. The note bears interest at 12% per annum and is payable from the collections of certain limited partners' notes as specified in the agreement. The proceeds of the borrowing were used to paydown the purchase price (see Note 1C). The sole security for this obligation is certain limited partners notes and their limited partnership interests. The balance of the note as of December 31, 1996 was unable to be confirmed during this period of transition. However, since the partners notes are the only security for this note, it has an immaterial effect on the financial statements taken as a whole. F-26 488 BRAMPTON ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9 -- PURCHASE PRICE AND INTEREST ON PURCHASE PRICE PAYABLE This amount represents the unpaid balance of the purchase price payable to RFC. The obligation carried interest from December 31, 1985 at the rate of 14% per annum, compounded quarterly (see Note 1C). Pursuant to the reorganization plan, the unpaid balance of the purchase price was reduced by $194,000. The new RFC note with a current principal amount of $787,529 bears interest at 9.5% per annum and is secured by certain notes from limited partners (see Note 1C). Subject to certain restrictions, the new RFC note is to be paid from the proceeds of collection of the notes receivable from limited partners, cash flows from operations of the project and from sales proceeds of the project. The partnership has incurred default interest in the amount of $30,500 which shall bear interest at the rate of 9.5% per annum and shall be payable on December 1, 1997. This default amount will be waived if no future events of default occur. This interest is not included in the financial statements due to its contingency on future events. NOTE 10 -- MANAGEMENT FEE The partnership entered into a management contract with Resources Property Management Corp. ("RPMC"), an affiliate of the general partner. The contract called for a fee of 4% of the gross receipts, as defined in the contract. The management contract with RPMC was terminated effective June 1, 1991. A new management contract was entered into by the partnership with Drucker & Falk effective June 1, 1991 on similar terms as with RPMC. This contract was terminated effective November 1, 1993. Upon termination of their contract the partnership owed RPMC $45,169 for their services. However, pursuant to the reorganization plan, the amount due to RPMC was reduced to $10,000 which was paid in 1993. On November 1, 1993, a new management contract was entered into with NPI Property Management Corp. which was an affiliate of the new general partner. Management fees paid to NPI Property Management Corp. for the year ended December 31, 1996 are $7,593.00. In February 1996, Insignia Financial became the new management company. Management fees paid to Insignia Financial for 1996 were $81,698.00. NOTE 11 -- PETITION FOR RELIEF UNDER CHAPTER 11 On December 18, 1991, the partnership filed petitions for relief under Chapter 11 of the United States Bankruptcy Code in the Federal Bankruptcy Court for the Southern District of New York. The Reorganization Plan developed by the partnership was confirmed by the Federal Bankruptcy Court for the Southern District of New York on September 15, 1992, effective September 30, 1992. Under the Reorganization Plan, certain debts of the partnership were reduced and the terms of repayment modified as described in Notes 9, 10, and 11. In accordance with the Internal Revenue Code, the reduction of the purchase price payable, as described in Note 9 was applied to reduce the basis of the fixed assets, and the reduction of the amounts due to Integrated and its affiliates (Note 11) and RPMC (Note 10) which was recorded as cancellation of debt income in the 1992 financial statements. F-27 489 BRAMPTON ASSOCIATES, L.P. FINANCIAL STATEMENTS DECEMBER 31, 1995 F-28 490 February 17, 1996 Brampton Associates, L.P. 5665 Northside Drive N.W. Suite 370 Atlanta, Georgia 30328-5805 We have reviewed the accompanying balance sheets of Brampton Associates, L.P., income tax basis, as of December 31, 1995, and the related statements of income and partners' capital (deficit), income tax basis, for the year then ended, and statement of cash flow, income tax basis, for the year ending December 31, 1995, in accordance with statements on standards for accounting and review services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Brampton Associates, L.P. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. As described in Note 2, these financial statements were prepared on the accounting basis used for income tax purposes and are not intended to be in conformity with generally accepted accounting principles. As described in Note 6 and 8, we were unable to confirm the accrued interest receivable and the Gaincred III note balance at December 31, 1995. Based on our review, we are not aware of any material modification that should be made to the accompanying financial statements in order for them to be in conformity with the basis of accounting described in Note 2. Respectfully Submitted, /s/ PORTOCK, BYE & CO. Portock, Bye & Co. Certified Public Accountants F-29 491 BRAMPTON ASSOCIATES, L.P. BALANCE SHEET DECEMBER 31, 1995 ASSETS Current assets Cash in bank.............................................. $ 591,693.08 Cash in bank -- restricted................................ 43,471.99 Rent receivable........................................... 1,005.75 Escrow -- R.E. tax........................................ 14,382.13 Loan receivable........................................... 2,704.15 -------------- Total current assets............................... 653,257.10 Property & equipment (Note 4) Land...................................................... 1,456,918.00 Land improvements......................................... 47,681.69 Building.................................................. 7,855,226.00 Building improvements..................................... 16,025.70 Equipment................................................. 29,403.87 Furniture & fixtures...................................... 679,441.14 -------------- Total property & equipment................................ 10,084,696.40 Less: accum. depreciation................................. (5,253,498.00) -------------- Net property & equipment........................... 4,831,198.40 Other assets Notes rec. -- ptrs. (Note 6).............................. 71,062.76 Syndication costs (Note 5)................................ 544,553.00 Financing costs (Note 5).................................. 209,885.00 Legal fees (Note 5)....................................... 45,000.00 Reinvestment fees (Note 5)................................ 25,000.00 -------------- Total other assets........................................ 895,500.76 Less: accum. amortization................................. (256,806.00) -------------- Total other assets................................. 638,694.76 -------------- Total assets....................................... $ 6,123,150.26 ============== LIABILITIES AND CAPITAL Current liabilities Accounts payable -- trade................................. $ 26,129.70 Mtg. pay -- L.M. (Note 7)................................. 5,747,239.53 Mtg. pay -- society (Note 7).............................. 420,874.60 Note pay -- GNCRD III (Note 8)............................ 30,712.50 Security deposits payable................................. 38,627.66 Accrued interest pay. .................................... 55,077.71 Prepaid rent.............................................. 17,922.05 Int. Pay -- RFC (Note 9).................................. 29,926.10 -------------- Total current liabilities.......................... 6,366,509.85 Non-current liabilities Note pay -- RFC (Note 9).................................. 787,529.00 -------------- Total non-current liab. ........................... 787,529.00 -------------- Total liabilities.................................. 7,154,038.85 Capital Investment -- Partner..................................... (845,730.11) Net loss year to date..................................... (161,508.48) Withdraws................................................. (23,650.00) -------------- Total capital...................................... (1,030,888.59) -------------- Total liabilities & capital........................ $ 6,123,150.26 ==============
See accompanying accountants review letter which is an integral part of this statement. F-30 492 BRAMPTON ASSOCIATES, L.P. STATEMENT OF REVENUES AND EXPENSES
01/01/95 TO 12/31/95 ------------- Income Rental income............................................. $1,664,647.36 Misc. income.............................................. 60,996.70 Late charges.............................................. 2,206.63 Laundry income............................................ 13,982.68 ------------- Total income...................................... 1,741,833.37 Operating expenses (Sch. I)................................. 1,942,209.73 ------------- Net operating loss.......................................... (200,376.36) Other income Interest earned........................................... 38,867.88 ------------- Total other income................................ 38,867.88 ------------- Net loss.......................................... $ (161,508.48) =============
See accompanying accountants review letter which is an integral part of this statement. F-31 493 BRAMPTON ASSOCIATES, L.P. STATEMENT OF REVENUES AND EXPENSES
01/01/95 TO 12/31/95 ------------ Operating expenses (Sch I) Advertising............................................... 14,844.37 Amortization.............................................. 24,560.00 Bad debts................................................. 6,917.00 Computer fees............................................. 858.68 Credit & collection....................................... 845.98 Depreciation.............................................. 380,692.00 Dues & subscription....................................... 19,751.59 Electric.................................................. 28,343.54 Exterminator.............................................. 2,514.09 Equipment rental.......................................... 2,259.76 Gas....................................................... 2,448.69 Insurance................................................. 57,985.85 Interest -- 1st........................................... 662,606.46 Interest -- 2nd........................................... 49,275.04 Interest -- other......................................... 32,864.57 Legal & professional...................................... 14,937.50 Licenses.................................................. 623.75 Locator fees.............................................. 5,065.83 Maintenance............................................... 176,929.87 Pool...................................................... 2,096.27 Management fees........................................... 89,077.00 Office expense............................................ 57,519.23 Payroll reimbursement..................................... 112,821.88 Payroll tax reimb. ....................................... 14,317.53 Property admin. exp. ..................................... 4,815.17 Promotion................................................. 7,495.33 Taxes -- real estate...................................... 92,651.02 Telephone................................................. 5,764.24 Travel.................................................... 482.47 Trash..................................................... 10,503.11 Water & sewer............................................. 60,341.04 ------------ Total operating expenses.......................... 1,942,209.73 ============
See accompanying accountants review letter which is an integral part of this statement. F-32 494 BRAMPTON ASSOCIATES, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (INCOME TAX BASIS) DECEMBER 31, 1995 Capital (deficit) -- beginning of year...................... $ (845,730.11) Withdraws -- defaulted partners notes....................... $ (23,650.00) Net (loss).................................................. $ (161,508.48) -------------- Capital (deficit) -- end of year............................ $(1,030,888.59) ==============
See accompanying accountants review letter which is an integral part of this statement. F-33 495 BRAMPTON ASSOCIATES, L.P. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash flow from operating activities Net income................................................ $(161,508.48) Noncash items included in net income Depreciation........................................... $ 380,692.00 Amortization........................................... 24,560.00 Changes in: Cash in bank -- restricted............................. 114,853.06 Rent receivable........................................ 2,340.82 Escrow -- R.E. tax..................................... (5,948.98) Loan receivable........................................ (2,704.15) Prepaid insurance...................................... 7,394.59 Accounts payable -- trade.............................. 15,788.06 Security deposits payable.............................. (1,199.93) Accrued interest pay. ................................. (298.19) Prepaid rent........................................... (450.06) Notes rec. -- ptrs. (note 6)........................... 52,709.18 Int. pay -- RFC (note 9)............................... (98,349.01) -------------- Total adjustments................................. 489,387.39 ------------ Net cash provided by (used by) operating activities...................................... 327,878.91 Cash flow from investing activities Land improvements......................................... (23,881.69) Equipment................................................. (6,505.06) Furniture & fixtures...................................... (60,488.67) -------------- Net cash provided by (used by) investing activities...................................... (90,875.42) Cash flow from financing activities Mtg. pay -- L.M. (note 7)................................. (5,747,239.53) Mtg. pay -- society (note 7).............................. (495,007.38) Note pay -- RFC (note 9).................................. (108,252.69) Partners withdraws........................................ (23,650.00) Mtg. pay -- L.M. (note 7)................................. 5,716,124.18 Mtg. pay -- society (note 7).............................. $ 419,078.99 -------------- Net cash provided by (used by) financing activities...................................... (238,946.43) ------------ Net increase (decrease) in cash................... (1,942.94) Cash at beginning of year................................... 593,636.02 ------------ Cash at end of year......................................... $ 591,693.08 ============
See accompanying accountants review letter which is an integral part of this statement. F-34 496 BRAMPTON ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE 1 -- A. Organization Brampton Associates, L.P. (the "Partnership"), a Connecticut Limited Partnership, was organized on December 17, 1985 to acquire, own, maintain and operate a 224 unit apartment complex known as Brampton Moors (the "Project") located in Cary, North Carolina. B. Purchase by RFC Pursuant to an acquisition agreement dated October 9, 1985, Resources Funding Corp. ("RFC"), an affiliate of the former general partner, agreed to acquire from Westminster Company (the "Seller") the land and the completed improvements for an aggregate purchase price of $10,000,000 with $1,400,000 allocable to the land and $8,600,000 (which was subsequently reduced by $600,000 to $8,000,000 pursuant to a predetermined pricing formula) allocable to the improvements. The portion allocable to the improvements is inclusive of interest at the rate of 16% per annum on certain deferred payments. On December 31, 1985, the Partnership purchased the land for $1,400,000 and simultaneously entered into a one year lease agreement with the Seller which required the Seller to complete the construction of the improvements and to pay $168,000 per annum in rent to the Partnership. Upon completion of the improvements in December 1986, RFC paid $7,300,000 (the "Interim Payment") to the Seller with the balance of $1,300,000 (the "Deferred Payment") payable upon the occurrence of certain events. $700,000 of the Deferred Payment was paid to the Seller on the first anniversary of the Interim Payment. The remaining $600,000 balance of purchase price was not earned by the Seller as the project did not attain certain predetermined performance levels, thus reducing the purchase price. The benefit of such reduction in the purchase price was passed on to the Partnership by RFC. C. Purchase from RFC Pursuant to the terms of an assignment and assumption agreement dated December 27, 1985, and a purchase agreement, the Partnership acquired the rights of RFC under the acquisition agreement. The original purchase price (the "Purchase Price") payable to RFC by the Partnership for such rights was $4,080,763, which was reduced to $3,480,763 because of the adjustment to the purchase price paid by RFC to the Seller (see Note 1B). The Partnership's obligation to pay the Purchase Price is non-recourse to the general partner and limited partners of the Partnership. A portion of the purchase price was paid with the proceeds of the Partnership borrowing from Gaincred III Corp (see Note 8). The limited partners' notes, together with the collateral securing such notes (including the Project), are pledged to RFC to secure payment of the Purchase Price or to Gaincred III Corp to secure payment of borrowing by the Partnership (see Note 6). NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Partnership are prepared on the accrual basis of accounting, consistent with reporting for federal income tax purposes, and include only those assets, liabilities, and results of operations of the Partnership, rather than those of the individual partners. The building and equipment are stated at cost and are being depreciated using the Accelerated Cost Recovery System ("ACRS") for assets placed in service prior to January 1, 1987 and the Modified Accelerated Cost Recovery System ("MACRS") for assets placed in service after December 31, 1986. Costs incurred in connection with the sale of the limited partnership units were capitalized and are not being amortized. F-35 497 BRAMPTON ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The income or loss of the Partnership is allocated 1% to the general partner and 99% to the limited partners. There is no provision for income taxes in the financial statements since the income or loss of the Partnership is required to be reported by the partners on their respective income tax returns. NOTE 3 -- CASH AND CASH EQUIVALENTS For purposes of the statement of cash flow, the Partnership considers all highly liquid investments with a maturity of three months or less to be cash equivalents. NOTE 4 -- PROPERTY, EQUIPMENT AND DEPRECIATION Depreciation is recorded at rates calculated to amortize the cost of the assets as follows: Building and Equipment...................................... 19 Years ACRS Land Improvements........................................... 15 Years MACRS Appliances -- placed in service prior to 1/1/87............. 5 Years ACRS Appliances -- placed in service post 12/31/86............... 7 Years 200% declining balance
Land, building, and equipment, with a cost of $10,084,696 are pledged as collateral for the mortgage note payable. The costs of maintenance and repairs of the property and equipment are charged to expense as incurred. NOTE 5 -- DEFERRED EXPENSES Deferred expenses and the related amortization are set forth as follows:
AMORT. ACCUM. UNAMORT. ITEM COST PERIOD AMORT. BALANCE ---- -------- ---------- -------- -------- Syndication costs............................... $544,553 N/A N/A $544,553 Financing costs................................. $209,885 120 months $190,635 $ 19,250 Legal fees...................................... $ 45,000 60 months $ 45,000 $ 0 Reinvest. fees.................................. $ 25,000 82 months $ 21,171 $ 3,829 -------- -------- -------- $824,438 $256,806 $567,632 ======== ======== ========
Syndication costs are a nondeductable expense and therefore are not being amortized. NOTE 6 -- NOTES RECEIVABLE (PARTNERS' CAPITAL CONTRIBUTIONS) The notes receivable represent capital contributions from the limited partners. They are payable in quarterly installments of principal and interest over either a four year or a seven year payment schedule, as elected by each partner. The notes are unconditional and negotiable and bear interest at the rate of 11.5% per annum. Interest has not been accrued on these notes for the current year due to the transition of the general partners and the lack of sufficient data available from the former general partner. Integrated Resources, Inc. experienced serious financial difficulties and on February 13, 1990 filed a voluntary petition for reorganization pursuant to the provisions of Chapter 11. Notes receivable have been pledged as collateral to secure the Partnership obligation of the Purchase Price payable to RFC and the note payable to Gaincred III Corp. (See Notes 1C, 8, 9, and 10). F-36 498 BRAMPTON ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7 -- MORTGAGE NOTES PAYABLE The project is subject to a mortgage held by Legg Mason Real Estate Service Inc. ("Mortgagee") in the original principal amount of $6,400,000. The mortgage required monthly installments of $62,507 (based on a 35 year amortization schedule), including interest at the rate of 11.5% per annum. The mortgage matures on December 1, 1996, therefore the remaining principal balance is classified as current liability in the financial statements. As a condition to financing, the Partnership was required to supply a letter of credit or to place up to $2 million in escrow, the amount of such funds to decline based on the amount of the shortfall from predetermined property performance levels. If two years from the date of disbursement of the mortgage loan, the project had not yet achieved the predetermined property performance levels, the mortgage loan would be reduced by 95% of the amount then held in escrow drawn under the letter of credit (the remaining 5% to be paid to the lender as a reinvestment fee). RFC had agreed to advance to the Partnership the required letter of credit or escrow amount and in the event of a reduction in the mortgage loan and payment of a reinvestment fee to the lender, RFC has agreed to lend the total of such amounts to the Partnership on the same conditions as such amounts would have been due under the mortgage loan. However, the Partnership, and not RFC, posted the letter of credit. The Partnership also posed its demand note as security for any drawings under the letter of credit and Integrated Resources, Inc. guaranteed the obligation of the Partnership in connection with the letter of credit. In 1988, as a result of meeting certain predetermined property performance levels, the amount of the letter of credit was reduced to $500,000. As a result of the project not meeting certain predetermined performance levels, on February 15, 1990, the escrow agent for the holder of the permanent mortgage drew the entire amount of $500,000, available under the letter of credit. 95% of the drawn amount was applied towards the reduction of principal of the mortgage loan and the remaining 5% of the drawn down amount was paid to Crown Life Insurance Company, the former Mortgagee, as a reinvestment fee. Due to a reduction of the remaining principal balance, the Mortgagee agreed to reduce the monthly installment payments from $62,507 to $57,835 effective April 1, 1990. Interest aggregating $662,606 was paid during the year under this mortgage note. The mortgage note can be prepaid in full at a premium as described in the mortgage note. As a result of a drawdown under the letter of credit as described above, the demand note in the amount of $500,000 became payable to Society National Bank ("Society"), (formerly Ameritrust Company National Associates) on February 15, 1990. Pursuant to a plan of reorganization approved by the Bankruptcy Court under Chapter 11 of the United States Bankruptcy Code ("Reorganization Plan"), the demand note due to Society was converted into a term loan in the amount of $500,000 (the "Second Mortgage"). The Second Mortgage requires monthly payments of $4,491 (based on a 35 year amortization schedule), including interest at the rate of 10.5% per annum and will mature on December 1, 1996. Interest in the amount of $49,275 was paid on the demand note payable to Society. Land, building and equipment, carried at a net book value of $4,831,198 are pledged as collateral for the above mortgages. NOTE 8 -- NOTE PAYABLE -- GAINCRED III CORP. On December 22, 1998, the Partnership borrowed $1,069,925 from Gaincred III Corp. evidenced by a single limited recourse promissory note. The note bears interest at 12% per annum and is payable from the collections of certain limited partners' notes as specified in the agreement. The proceeds of the borrowing were used to paydown the Purchase Price (see Note 1C). The sole security for this obligation is certain limited partners notes and their limited partnership interests. The balance of the note as of December 31, 1995 was unable to be confirmed during this period of transition. However, since the partners notes are the only security for this note, it has an immaterial effect on the financial statements taken as a whole. F-37 499 BRAMPTON ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9 -- PURCHASE PRICE AND INTEREST ON PURCHASE PRICE PAYABLE This amount represents the unpaid balance of the Purchase Price payable to RFC. The obligation carried interest from December 31, 1985 at the rate of 14% per annum, compounded quarterly (see Note 1C). Pursuant to the Reorganization Plan, the unpaid balance of the Purchase Price was reduced by $194,000. The new RFC note with a principal amount of $989,932 bears interest at 9.5% per annum and is secured by certain notes from limited partners (see Note 1C). Subject to certain restrictions, the new RFC note is to be paid from the proceeds of collection of the notes receivable from limited partners, cash flows from operations of the Project and from sales proceeds of the Project. The Partnership has incurred default interest in the amount of $30,500 which shall bear interest at the rate of 9.5% per annum and shall be payable on December 1, 1997. This default amount will be waived if no future events of default occur. This interest is not included in the financial statements due to its contingency on future events. NOTE 10 -- RESTRICTED CASH The restricted cash represented collections of notes receivable held in a separate bank account subject to certain restrictions. This cash was used to reduce the new RFC note (see Note 9) by $108,253 in principal and to pay the interest accrued through August 7, 1995 of $131,213. In addition, $71,314 was paid to reduce the Society National Bank Demand Note (see Note 7). NOTE 11 -- MANAGEMENT FEE The Partnership entered into a management contract with Resources Property Management Corp. ("RPMC"), an affiliate of the general partner. The contract called for a fee of 4% of the gross receipts, as defined in the contract. The management contract with RPMC was terminated effective June 1, 1991. A new management contract was entered into by the Partnership with Drucker & Falk effective June 1, 1991 on similar terms as with RPMC. This contract was terminated effective November 1, 1993. Upon termination of their contract the Partnership owed RPMC $45,169 for their services. However, pursuant to the Reorganization Plan, the amount due to RPMC was reduced to $10,000 which was paid in 1993. On November 1, a new management contract was entered into with NPI Property Management Corp. which is an affiliate of the new general partner. Management fees paid to NPI Property Management Corp. for the year ended December 31, 1995 are $89,077.00. NOTE 12 -- PETITION FOR RELIEF UNDER CHAPTER 11 On December 18, 1991, the Partnership filed petitions for relief under Chapter 11 of the United States Bankruptcy Code in the Federal Bankruptcy Court for the Southern District of New York. The Reorganization Plan developed by the Partnership was confirmed by the Federal Bankruptcy Court for the Southern District of New York, on September 15, 1992, effective September 30, 1992. Under the Reorganization Plan, certain debts of the Partnership were reduced and the terms of repayment modified as described in Notes 9, 10 and 11. In accordance with the Internal Revenue Code, the reduction of the Purchase Price payable, as described in Note 9 was applied to reduce the basis of the fixed assets, and the reduction of the amounts due to Integrated and its affiliates (Note 11) and RPMC (Note 10) which was recorded as cancellation of debt income in the 1992 financial statements. F-38 500 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 501 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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-2 502 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 September , 1998 A-3 503 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF BUCCANEER TRACE 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 504 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 Comparison of Tax-Deferral % Preferred OP Units and Class I Preferred Stock.......... S-15 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 Buccaneer Trace 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40
PAGE ---- Fees and Expenses............................ S-41 Accounting Treatment......................... S-41 DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-43 Voting Rights................................ S-43 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-61 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71
i 505
PAGE ---- YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72 Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-73 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77
PAGE ---- Distributions and Transfers of Units......... S-77 Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 506 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 Buccaneer Trace 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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-1 507 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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-2 508 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 $0 per unit 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). 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 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. 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 S-3 509 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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-4 510 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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-5 511 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-6 512 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. 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. 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 5 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. 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 S-7 513 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. 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. Although your partnership did not make any distributions in 1998, it might make distributions in the future. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 514 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 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 S-9 515 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 516 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, 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. 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 S-11 517 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 518 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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). Your partnership has not paid any distributions on your units since the inception of your partnership. - 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. S-13 519 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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-14 520 - 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 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. COMPARISON OF TAX-DEFERRAL % PREFERRED OP UNITS AND CLASS I PREFERRED STOCK There are a number of significant differences between Tax-Deferral % Preferred OP Units and Class I Preferred Stock relating to, among other things, the nature of the investment, voting rights, distributions, liquidity and transfer and redemption rights. See "Comparison of Preferred OP Units and Class I Preferred Stock" for a chart highlighting such differences. S-15 521 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 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. 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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-16 522 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 523 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 is not subject to such limitations. 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives 1/2 of 1% of the gross operating revenue of your partnership's property as a partnership administration fee from your partnership and may receive reimbursement for expenses generated in that capacity. The property manager which received management fees of $74,140 in 1996, $79,405 in 1997 and $34,705 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. S-18 524 YOUR PARTNERSHIP Your Partnership and its Property. Buccaneer Trace Limited Partnership is a South Carolina limited partnership which was formed on October 31, 1985 for the purpose of owning and operating a single apartment property located in Savannah, Georgia, known as "Buccaneer Trace Apartments". In 1985, it completed a private placement of units that raised net proceeds of approximately $2,928,000. Buccaneer Trace Apartments consists of 208 apartment units. Your partnership has no employees. Property Management. Since December 1990, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2013, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $6,987,056, payable to 1st Union and Lehman, which bears interest at a rate of 8.94%. The mortgage debt is due in May 2004. Your partnership also has a second mortgage note outstanding of $142,290, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-19 525 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, 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-20 526
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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-21 527 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 528
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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-23 529 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 530 SUMMARY FINANCIAL INFORMATION OF BUCCANEER TRACE LIMITED PARTNERSHIP The summary financial information of Buccaneer Trace Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Buccaneer Trace Limited Partnership for the years ended December 31, 1997 and 1996, 1995, 1994 and 1993 is based on 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 of Your Partnership" included herein. See "Index to Financial Statements." BUCCANEER TRACE LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (1) (1) (1) (1) (1) (1) (1) OPERATING DATA: Total Revenues............... $ 676,278 $ 695,809 $ 1,457,767 $ 1,508,799 $ 1,406,836 $ 1,390,362 statement Net Income/(Loss)............ (121,053) (59,459) (200,301) (155,641) (314,499) (228,066) 0 BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... 2,394,272 2,663,600 2,545,748 2,803,924 3,071,115 3,287,674 3,566,788 Total Assets................. 3,090,467 3,337,832 3,265,830 3,679,927 3,899,775 4,389,927 4,544,923 Mortgage Notes Payable, including Accrued Interest................... 6,987,056 7,036,106 7,012,127 7,330,467 7,397,654 7,460,121 7,515,449 Partners' Capital/(Deficit).......... (4,028,869) (3,766,974) (3,907,816) (3,707,515) (3,551,874) (3,237,375) (3,009,309)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $0
- --------------- (1) Prepared on a Federal Income Tax Basis. S-25 531 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. 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 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 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. S-26 532 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 Code. 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 therefore 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 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. 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 S-27 533 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25, and the 1998 distributions of $0 with respect to your units, 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 S-28 534 AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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). S-29 535 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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. Your Partnership has not paid any distributions on your units since the inception of your partnership. S-30 536 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 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. Your Partnership has not paid any distributions on your units since the inception of your partnership. - 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-31 537 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 538 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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-33 539 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. 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. S-34 540 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." 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. 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. S-35 541 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, (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 9:00 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 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, Denver, Colorado time. S-36 542 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 543 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. 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 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 S-38 544 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 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 S-39 545 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 546 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. 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. 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-41 547 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-42 548 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 payment. 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 OP Units and any such S-43 549 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-44 550 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-45 551 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-46 552 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-47 553 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-48 554 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-49 555 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 556 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-51 557 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 558 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In addition, we considered the recent decline in the market for equity securities including those of REIT, 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 559 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 560 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 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, a third party expert, that the cash 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 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, 1998 were $2,640 (equivalent to $5,280 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-55 561 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-56 562 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. 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-57 563 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-58 564 performed a site inspection 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 September 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 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 property was 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 S-59 565 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. S-60 566 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 $9,000 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-61 567 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Buccaneer Trace Apartments. 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, 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, operate, The purpose of the AIMCO Operating Partnership is to lease, manage, deal with, finance and refinance your conduct any business that may be lawfully conducted by partnership's property for investment, capital a limited partnership organized pursuant to the appreciation and the production of income. Subject to Delaware Revised Uniform Limited Partnership Act (as restrictions contained in your partnership's agreement amended from time to time, or any successor to such of limited partnership, your partnership may do all statute) (the "Delaware Limited Partnership Act"), things necessary for or incidental to the protection provided that such business is to be conducted in a and benefit of your partnership, including, without manner that permits AIMCO to be qualified as a REIT, limitation, borrowing funds 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-62 568 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 61 units for cash and time to the limited partners and to other persons, and notes 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. 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 The general partner of your partnership may not enter The AIMCO Operating Partnership may lend or contribute into agreements with itself or any of its affiliates funds or other assets to its subsidiaries or other for services, except for agreements for the management persons in which it has an equity investment, and such and operations of your partnership's property and other persons may borrow funds from the AIMCO Operating such agreements set forth in your partnership's Partnership, on terms and conditions established in the agreement of limited partnership. The general partner sole and absolute discretion of the general partner. To may also lend money to your partnership as the general the extent consistent with the business purpose of the partner deems necessary for the payment of any AIMCO Operating Partnership and the permitted partnership obligations and expenses, which loans, will activities of the general partner, the AIMCO Operating be repaid with interest at the rate of 1% per annum Partnership may transfer assets to joint ventures, over such general partners' own cost of funds (but in limited liability companies, partnerships, no event to exceed the maximum legal rate); provided, corporations, business trusts or other business however, that the general partner must first make entities in which it is or thereby becomes a reasonable efforts to secure loans from an unaffiliated participant upon such terms and subject to such third party. 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 on behalf of your partnership, to borrow funds, execute restrictions on borrowings, and the general partner has and issue mortgage notes and other evidences of full power and authority to borrow money on behalf of indebtedness and secure such indebtedness by mortgage, the AIMCO Operating Partnership. The AIMCO Operating deed of trust, pledge or other lien; provided, however, Partnership has credit agreements that restrict, among that a refinancing of your partnership's property will other things, its ability to incur indebtedness. See be in the sole discretion of the managing general "Risk Factors -- Risks of Significant Indebtedness" in partner. the accompanying Prospectus.
S-63 569 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 the limited partners or their duly authorized with a statement of the purpose of such demand and at representative to review the books and records of your such OP Unitholder's own expense, to obtain a current partnership upon reasonable notice during business list of the name and last known business, residence or hours at the registered office of your partnership at mailing address of the general partner and each other such limited partners' expense. OP Unitholder.
Management Control The general partner of your partnership is responsible All management powers over the business and affairs of for management of your partnership's business and the AIMCO Operating Partnership are vested in AIMCO-GP, assets and have all rights and powers generally Inc., which is the general partner. No OP Unitholder conferred by law or which are necessary, advisable or has any right to participate in or exercise control or consistent in connection therewith, subject to the management power over the business and affairs of the limitations contained in your partnership's agreement AIMCO Operating Partnership. The OP Unitholders have of limited partnership. No limited partner has the the right to vote on certain matters described under right to take part in or interfere in any manner with "Comparison of Ownership of Your Units and AIMCO OP the conduct or control of the business of your Units -- Voting Rights" below. The general partner may partnership or the right or authority to act for or not be removed by the OP Unitholders with or without bind your partnership. 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 to your partnership or the limited partners partner is not liable to the AIMCO Operating and is indemnified for any loss or damage resulting Partnership for losses sustained, liabilities incurred from any act or omission performed or omitted in good or benefits not derived as a result of errors in faith, which does not constitute fraud, gross judgment or mistakes of fact or law of any act or negligence or willful misconduct, pursuant of the omission if the general partner acted in good faith. authority granted to promote the interests of your The AIMCO Operating Partnership Agreement provides for partnership. Moreover, the general partner will not be indemnification of AIMCO, or any director or officer of liable to your partnership or the limited partner AIMCO (in its capacity as the previous general partner because any taxing authorities disallow or adjust any of the AIMCO Operating Partnership), the general deduction or credits in your partnership income tax partner, any officer or director of general partner or returns. the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware 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
S-64 570 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 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 units. A general partner partner may not be removed as general partner of the may resign at any time; provided, however that such AIMCO Operating Partnership by the OP Unitholders with resignation does not cause the default under or result or without cause. Under the AIMCO Operating Partnership in the acceleration of the payment of any loan secured Agreement, the general partner may, in its sole by your partnership's property. The affirmative vote or discretion, prevent a transferee of an OP Unit from written consent of all of the limited partners and the becoming a substituted limited partner pursuant to the general partner is required for the election and AIMCO Operating Partnership Agreement. The general admission of a substitute general partner. A limited partner may exercise this right of approval to deter, partner may not transfer its units without the written delay or hamper attempts by persons to acquire a consent of the general partner which may be withheld in controlling interest in the AIMCO Operating Partner- sole and absolute 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 limited partnership may With the exception of certain circumstances set forth be amended by the unanimous action of the general in the AIMCO Operating Partnership Agreement, whereby partner to effect a ministerial change which does not the general partner may, without the consent of the OP materially affect the rights of the limited partners Unitholders, amend the AIMCO Operating Partnership and as required by law. All other amendments must be Agreement, amendments to the AIMCO Operating approved by the limited partners owning more than 50% Partnership Agreement require the consent of the of the units and the general partner. Limited partners holders of a majority of the outstanding Common OP owning at least 10% of the units have the power to Units, excluding AIMCO and certain other limited propose amendments to your partnership's agreement of exclusions (a "Majority in Interest"). Amendments to limited partnership. the AIMCO Operating Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives 1/2 of 1% of the gross operating revenue of capacity as general partner of the AIMCO Operating your partnership's property as a partnership Partnership. In addition, the AIMCO Operating Part- administration fee. Moreover, the general partner or nership is responsible for all expenses incurred certain affiliates may be entitled to compensation for relating to the AIMCO Operating Partnership's ownership additional services rendered. 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-65 571 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors No limited partner, unless it is deemed to be taking Except for fraud, willful misconduct or gross part in the control of the business, is bound by, or is negligence, no OP Unitholder has personal liability for personally liable for the expenses, liabilities or the AIMCO Operating Partnership's debts and obligation of your partnership and his liability is obligations, and liability of the OP Unitholders for limited solely to the amount of his capital the AIMCO Operating Partnership's debts and obligations contribution to your partnership, together with the is generally limited to the amount of their invest- undistributed share of the profits of your partnership ment in the AIMCO Operating Partnership. However, the form time to time credited to its capital account and limitations on the liability of limited partners for any money or other property wrongfully paid or conveyed the obligations of a limited partnership have not been to him on account of his contribution. 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 possesses an Unless otherwise provided for in the relevant overriding fiduciary obligation to your partnership. partnership agreement, Delaware law generally requires However, the general partner is not required to devote a general partner of a Delaware limited partnership to all of its time or business efforts to the affairs of adhere to fiduciary duty standards under which it owes your partnership, but it must devote so much of its its limited partners the highest duties of good faith, time and attention to your partnership as is necessary fairness and loyalty and which generally prohibit such and advisable to successfully manage the affairs of general partner from taking any action or engaging in your partnership. In addition, any partner may engage any transaction as to which it has a conflict of in or possess an interest in other business ventures of interest. The AIMCO Operating Partnership Agreement every nature and description even if such ventures are expressly authorizes the general partner to enter into, competitive with your partnership and are located in on behalf of the AIMCO Operating Partnership, a right the market area or vicinity of your partnership's of first opportunity arrangement and other conflict property. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-66 572 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, the limited applicable law or in the AIMCO ship Agreement, the OP Unitholders partners have voting rights only Operating Partnership Agreement, have voting rights only with with respect to the following the holders of the Preferred OP respect to certain limited matters issues: sale or conversion to con- Units will have the same voting such as certain amendments and dominiums or other disposition of rights as holders of the Common OP termination of the AIMCO Operating all or substantially all of the Units. See "Description of OP Partnership Agreement and certain assets of your partnership, Units" in the accompanying transactions such as the amendments to your partnership's Prospectus. So long as any institution of bankruptcy agreement of limited partnership, Preferred OP Units are outstand- proceedings, an assignment for the termination of your partnership, ing, in addition to any other vote benefit of creditors and certain removal of a general partner, or consent of partners required by transfers by the general partner of election and admission of a law or by the AIMCO Operating its interest in the AIMCO Operating substitute general partner and Partnership Agree- Part-
S-67 573 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS election of a trustee to liquidate ment, the affirmative vote or nership or the admission of a and distribute your partnership's consent of holders of at least 50% successor general partner. assets upon retirement of the last of the outstanding Preferred OP remaining general partner. Each Units will be necessary for Under the AIMCO Operating Partner- matter requires the majority vote effecting any amendment of any of ship Agreement, the general partner of the holders of units for the provisions of the Partnership has the power to effect the approval, except that the election Unit Designation of the Preferred acquisition, sale, transfer, of a substitute general partner OP Units that materially and exchange or other disposition of requires the unanimous vote of all adversely affects the rights or any assets of the AIMCO Operating limited partners and the consent of preferences of the holders of the Partnership (including, but not the general partner. Preferred OP Units. The creation or limited to, the exercise or grant issuance of any class or series of of any conversion, option, A general partner may cause the partnership units, including, privilege or subscription right or dissolution of your partnership by without limitation, any partner- any other right available in retiring unless, the remaining ship units that may have rights connection with any assets at any general partner, or if none, all of senior or superior to the Preferred time held by the AIMCO Operating the limited partners, agree to con- OP Units, shall not be deemed to Partnership) or the merger, tinue your partnership and elect a materially adversely affect the consolidation, reorganization or successor general partner by the rights or preferences of the other combination of the AIMCO affirmative vote of all of the holders of Preferred OP Units. With Operating Partnership with or into limited partners. 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 are to be distributed no provided, however, that at any time portion as the general partner may less often than quarterly. 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 refi- adjust the annual distribution rate the AIMCO Operating Partnership nancing 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. No limited partner has the interest rate then applicable to partner and the holders of Common right to demand or receive property U.S. Treasury notes with a maturity OP Units on the record date other than cash, although the of five years, and (ii) the annual established by the general partner general partner may distribute dividend rate on the most recently with respect to such quarter, in property other than cash. Your issued AIMCO non-convertible accordance with their respective partnership has not made preferred stock which ranks on a interests in the AIMCO Operating distributions in the past and is parity with its Class H Cumu- Partnership on such record date. not projected to make distributions Holders of any other Pre- in 1998.
S-68 574 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 and be Preferred OP Units and the OP Units. The AIMCO Operating Part- substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the such person if: (1) such transfer on any securities exchange. The transferability of the OP Units. is not in contravention with any of Preferred OP Units are subject to Until the expiration of one year the provision of your partnership's restrictions on transfer as set from the date on which an OP agreement of limited partnership, forth in the AIMCO Operating Unitholder acquired OP Units, including the investment Partnership Agreement. subject to certain exceptions, such representations required to be made OP Unitholder may not transfer all by each limited partner, (2) such Pursuant to the AIMCO Operating or any portion of its OP Units to transfer will not cause a Partnership Agreement, until the any transferee without the consent termination of your partnership for expiration of one year from the of the general partner, which Federal income tax purposes, (3) a date on which a holder of Preferred consent may be withheld in its sole written assignment has been duly OP Units acquired Preferred OP and absolute discretion. After the executed and acknowledged by the Units, subject to certain expiration of one year, such OP assignor and assignee, with the exceptions, such holder of Unitholder has the right to written approval of the managing Preferred OP Units may not transfer transfer all or any portion of its general partner which may be all or any portion of its Pre- OP Units to any person, subject to withheld in the sole and absolute ferred OP Units to any transferee the satisfaction of certain discretion of the managing gen- without the consent of the general conditions specified in the AIMCO eral partner, (4) the assignee partner, which consent may be Operating Partnership Agreement, represents it satisfies the withheld in its sole and absolute including the general partner's suitability requirement appli- discretion. After the expiration of right of first refusal. See cable to limited partners, (5) the one year, such holders of Preferred "Description of OP Units -- interest assigned is not less than OP Units has the right to transfer Transfers and Withdrawals" in the 1/2 unit, except in specified all or any portion of its Preferred accompanying Prospectus. circumstances and (6) the as- OP Units to any person, subject to signee and assignor satisfy other the satisfaction of condi-
S-69 575 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tions set for in your partnership's certain conditions specified in the After the first anniversary of agreement of limited partnership. AIMCO Operating Partnership Agree- becoming a holder of Common OP There are no redemption rights ment, including the general Units, an OP Unitholder has the associated with your units. partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-70 576 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives 1/2 of 1% of the gross operating revenue of your partnership's property as a partnership administration fee from your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $74,140 in 1996, $79,405 in 1997 and 34,705 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-71 577 YOUR PARTNERSHIP GENERAL Buccaneer Trace Limited Partnership is a South Carolina limited partnership which raised net proceeds of approximately $2,928,000 in 1985 through a private offering. The promoter for the private offering of your partnership was US Shelter Corp. Insignia acquired your partnership in December 1990. AIMCO acquired Insignia in October, 1998. There are currently a total of 56 limited partners of your partnership and a total of 61 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 31, 1985 for the purpose of owning and operating a single apartment property located in Savannah, Georgia, known as "Buccaneer Trace Apartments." Your partnership property consists of 208 apartment units. There are 48 one-bedroom apartments and 160 two-bedroom apartments. The total rentable square footage of your partnership's property is 203,184 square feet. Your partnership's property had an average occupancy rate of approximately 97.12% in 1996 and 97.12% in 1997. The average annual rent per apartment unit is approximately $6,682. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1990, your partnership's property has been managed by an entity which is now an affiliate of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership 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. The management fee which your partnership paid the property manager during the first six months of 1998 was $34,705. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2013 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-72 578 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $6,987,056, payable to 1st Union and Lehman, which bears interest at a rate of 8.94%. The mortgage debt is due in May 2004. Your partnership also has a second mortgage note outstanding of $142,290, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 579 Below is selected financial information for Buccaneer Trace Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
BUCCANEER TRACE LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (1) (1) (1) (1) (1) (1) (1) BALANCE SHEET DATA Cash and Cash Equivalents.... $ 44,609 $ 135,379 $ 75,825 $ 275,421 $ 237,031 $ 492,839 $ 449,175 Land & Building.............. 7,940,910 7,860,143 7,917,338 7,825,419 7,749,591 7,639,287 7,607,149 Accumulated Depreciation..... (5,546,638) (5,196,543) (5,371,590) (5,021,495) (4,678,476) (4,351,613) (4,040,361) Other Assets................. 651,586 538,853 644,257 600,582 591,629 609,414 528,960 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 3,090,467 $ 3,337,832 $ 3,265,830 $ 3,679,927 $ 3,899,775 $ 4,389,927 $ 4,544,923 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... 6,987,056 7,036,106 7,012,127 7,330,467 7,397,654 7,460,121 7,515,449 Other Liabilities............ 132,280 68,700 161,519 56,975 53,995 167,181 38,783 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... $ 7,119,336 $ 7,104,806 $ 7,173,646 $ 7,387,442 $ 7,451,649 $ 7,627,302 $ 7,554,232 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $(4,028,869) $(3,766,974) $(3,907,816) $(3,707,515) $(3,551,874) $(3,237,375) $(3,009,309) =========== =========== =========== =========== =========== =========== ===========
BUCCANEER TRACE LIMITED PARTNERSHIP ------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, -------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 --------- -------- ---------- ---------- ---------- ---------- ---------- (1) (1) (1) (1) (1) (1) (1) STATEMENT OF OPERATIONS DATA Rental Revenue........................ $ 630,114 $674,372 $1,392,578 $1,434,059 $1,324,845 $1,309,654 1993 Other Income.......................... 46,164 21,436 65,189 74,740 81,991 80,708 Income --------- -------- ---------- ---------- ---------- ---------- ---------- Total Revenue................ $ 676,278 $695,809 $1,457,767 $1,508,799 $1,406,836 $1,390,362 statement Operating Expenses.................... 246,728 235,838 596,474 490,811 559,750 463,538 information General & Administrative.............. not Depreciation.......................... 175,048 175,048 350,095 343,019 326,863 311,252 available Interest Expense...................... 318,088 287,968 602,039 712,508 717,229 724,368 Property Taxes........................ 57,467 56,413 109,460 118,102 117,493 119,270 --------- -------- ---------- ---------- ---------- ---------- ---------- Total Expenses............... $ 797,331 $755,267 $1,658,068 $1,664,440 $1,721,335 $1,618,428 $ 0 --------- -------- ---------- ---------- ---------- ---------- ---------- Net Income............................ $(121,053) $(59,459) $ (200,301) $ (155,641) $ (314,499) $ (228,066) $ 0 ========= ======== ========== ========== ========== ========== ==========
- --------------- (1) Prepared on a Federal Income Tax Basis. S-74 580 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized a net loss of $121,053 for the six months ended June 30, 1998, compared to a net loss of $59,459 for the six months ended June 30, 1997. The decrease in net income of $61,594, or 103.59% was primarily the result of increases in operating and interest expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $676,278 for the six months ended June 30, 1998, compared to $695,809 for the six months ended June 30, 1997, a decrease of $19,531, or 2.81%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $246,728 for the six months ended June 30, 1998, compared to $235,838 for the six months ended June 30, 1997, an increase of $10,890 or 4.62%. Management expenses totaled $34,705 for the six months ended June 30, 1998, compared to $36,300 for the six months ended June 30, 1997, a decrease of $1,595, or 4.39%. General and Administrative Expenses Not Applicable Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $318,088 for the six months ended June 30, 1998, compared to $287,968 for the six months ended June 30, 1997, an increase of $30,120, or 10.46%. The increase is due to circumstances surrounding the refinancing of the mortgage in May of 1997. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $200,301 for the year ended December 31, 1997, compared to a net loss of $155,641 for the year ended December 31, 1996. The decrease in net income of $44,660, or 28.69% was primarily the result of a decrease in rental revenues in 1997 and an increase in operating expenses, offset by a decrease in interest expense. Rental and other property revenues from the partnership's property totaled $1,457,767 for the year ended December 31, 1997, compared to $1,508,799 for the year ended December 31, 1996, a decrease of $51,032, or 3.38%. Expenses Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $596,474 S-75 581 for the year ended December 31, 1997, compared to $490,811 for the year ended December 31, 1996, an increase of $105,663 or 21.53%. The increase is primarily due to an increase in rental concessions and promotions to offset decreased occupancy levels and is also due to gutter repair and painting projects at the property. Management expenses totaled $72,925 for the year ended December 31, 1997, compared to $74,140 for the year ended December 31, 1996, a decrease of $1,215, or 1.64%. General and Administrative Expenses Not Applicable Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $602,039 for the year ended December 31, 1997, compared to $712,508 for the year ended December 31, 1996, a decrease of $110,469, or 15.50%. The decrease is primarily due to lower interest rates and a reduced principal balance as a result of the refinancing of the mortgage. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $155,641 for the year ended December 31, 1996, compared to a net loss of $314,499 for the year ended December 31, 1995. The increase in net income of $158,858 was primarily the result of an increase in rental revenues and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,508,799 for the year ended December 31, 1996, compared to $1,406,836 for the year ended December 31, 1995, an increase of $101,963, or 7.25%. The increase was primarily due to increased average occupancy levels during 1996 as compared to 1995. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $490,811 for the year ended December 31, 1996, compared to $559,750 for the year ended December 31, 1995, a decrease of $68,939 or 12.32%. The decrease is due to a decrease in maintenance and marketing expenses at the property. Management expenses totaled $74,140 for the year ended December 31, 1996, compared to $71,384 for the year ended December 31, 1995, an increase of $2,756, or 3.86%. General and Administrative Expenses Not Applicable Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $712,508 for the year ended December 31, 1996, compared to $717,229 for the year ended December 31, 1995, a decrease of $4,721, or .66% Liquidity and Capital Resources As of June 30, 1998, your partnership had $44,609 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-76 582 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 to your partnership or the limited partners for any loss or damage resulting from any act or omission performed or omitted in good faith, which does not constitute fraud, gross negligence or willful misconduct, pursuant of the authority granted to promote the interests of your partnership. Moreover, the general partner will not be liable to your partnership or the limited partner because any taxing authorities disallow or adjust any deduction or credits in your partnership income tax returns. 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 owned by AIMCO. See "Conflicts of Interest". Under your partnership's agreement of limited partnership, the general partner of your partnership are indemnified for any loss or damage resulting from any act or omission performed or omitted in good faith, which does not constitute fraud, gross negligence or willful misconduct, pursuant of the authority granted to promote the interests of your partnership. Such indemnification includes reasonable fees and expenses of attorneys engaged by the general partner in defense of such act or omission and other reasonable costs and expenses of litigation and appeal. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions Your partnership has not paid any distributions during the last five years. The original cost per unit was $54,348. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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-77 583 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------- 1994........................................................ Not Available 1995........................................................ $ 11,480 1996........................................................ 12,480 1997........................................................ 9,000 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................................ $71,380 1996........................................................ 74,140 1997........................................................ 79,405 1998 (through June 30)...................................... 34,705
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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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. S-78 584 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Balance Sheets as of December 31, 1997 and 1996 (unaudited)............................................... F-5 Statements of Operations for the years ended December 31, 1997, 1996 and 1995 (unaudited)........................... F-6
F-1 585 BUCCANEER TRACE LIMITED PARTNERSHIP CONDENSED BALANCE SHEET (UNAUDITED) FEDERAL INCOME TAX BASIS JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 44,609 Receivables and Deposits and Other assets................... 280,487 Syndication Fees............................................ 371,099 Investment Property: Land...................................................... $ 727,216 Buildings and related personal property................... 7,213,694 ----------- 7,940,910 Accumulated depreciation.................................. (5,546,638) 2,394,272 ----------- ----------- Total Assets...................................... $ 3,090,467 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable and Other liabilities...................... $ 132,280 Notes Payable............................................... 6,987,056 Partners' Capital........................................... (4,028,869) ----------- Total Liabilities and Partners' Capital........... $ 3,090,467 ===========
F-2 586 BUCCANEER TRACE LIMITED PARTNERSHIP CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) FEDERAL INCOME TAX BASIS
SIX MONTHS ENDED JUNE 30, -------------------- 1998 1997 --------- -------- Revenues: Rental Income............................................. $ 630,114 $674,372 Other Income.............................................. 46,164 21,436 (Gain) Loss on Disp of Property........................... -- -- Casualty Gain/Loss........................................ -- -- --------- -------- Total Revenues.................................... 676,278 695,808 Expenses: Operating Expenses........................................ 246,620 235,777 General and Administrative Expenses....................... 108 61 Depreciation Expense...................................... 175,048 175,048 Interest Expense.......................................... 318,088 287,968 Property Tax Expense...................................... 57,467 56,413 --------- -------- Total Expenses.................................... 797,331 755,267 --------- -------- Net (Income) Loss................................. $(121,053) $(59,459) ========= ========
F-3 587 BUCCANEER TRACE LIMITED PARTNERSHIP CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) FEDERAL INCOME TAX BASIS
SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 --------- --------- Operating Activities: Net Income (loss)......................................... $(121,053) $ (59,459) Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 175,048 175,048 Loss on Casualty event................................. -- -- Extraordinary loss on refinancing...................... -- -- Changes in accounts: Receivables and Deposits............................. (23,218) (124,449) Accounts payable..................................... (29,239) 11,725 Net cash provided by (used in) operating activities...................................... 1,538 2,865 --------- --------- Investing Activities Property improvements and replacements.................... (23,572) (34,724) Net (increase)/decrease in restricted escrows............. 15,889 -- --------- --------- Net cash provided by (used in) investing activities...................................... (7,683) (34,724) --------- --------- Financing Activities Payments on mortgage...................................... (25,071) (27,780) Repayment of mortgage..................................... -- (7,048,875) Proceeds from refinancing of mortgage..................... -- 7,040,000 Payment of Loan Costs..................................... -- (71,528) --------- --------- Net cash provided by (used in) financing activities...................................... (25,071) (108,183) --------- --------- Net increase (decrease) in cash and cash equivalents..................................... (31,216) (140,042) Cash and cash equivalents at beginning of year............ 75,825 275,421 --------- --------- Cash and cash equivalents at end of period................ $ 44,609 $ 135,379 ========= =========
F-4 588 BUCCANEER TRACE LIMITED PARTNERSHIP BALANCE SHEETS (UNAUDITED) FEDERAL INCOME TAX BASIS
YEARS ENDED --------------------------- 12/31/97 12/31/96 ------------ ------------ Assets: Cash and cash equivalents................................. $ 75,825 $ 275,421 Receivables and deposits and other assets................. 273,158 229,483 Syndication fees.......................................... 371,099 371,099 Investment Property: Land................................................... 727,216 727,216 Buildings and related personal property................ 7,190,122 7,098,203 ------------ ------------ 7,917,338 7,825,419 Less: Accumulated depreciation......................... (5,371,590) (5,021,495) ------------ ------------ 2,545,748 2,803,924 Total Assets...................................... $ 3,265,830 $ 3,679,927 ============ ============ Liabilities and Partners' Deficit: Accounts payable and other liabilities.................... $ 161,519 $ 56,975 Notes Payable............................................. 7,012,127 7,330,467 Partners' Capital (Deficit)................................. (3,907,816) (3,707,515) ------------ ------------ Total Liabilities and Partners' Deficit........... $ 3,265,830 $ 3,679,927 ============ ============
F-5 589 BUCCANEER TRACE LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (UNAUDITED) FEDERAL INCOME TAX BASIS
YEARS ENDED DECEMBER 31, ------------------------------------ 1997 1996 1995 ---------- ---------- ---------- Revenues: Rental Income.......................................... $1,392,578 $1,434,059 $1,324,845 Other Income........................................... 65,189 74,740 81,991 ---------- ---------- ---------- Total Revenues................................. 1,457,767 1,508,799 1,406,836 Expenses: Operating Expenses..................................... 596,142 490,322 558,982 General and Administrative Expenses.................... 332 489 768 Depreciation Expense................................... 350,095 343,019 326,863 Interest Expense....................................... 602,039 712,508 717,229 Property Tax Expense................................... 109,460 118,102 117,493 ---------- ---------- ---------- Total Expenses................................. 1,658,068 1,664,440 1,721,335 ---------- ---------- ---------- Net Loss....................................... $ (200,301) $ (155,641) $ (314,499) ========== ========== ==========
F-6 590 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 591 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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-2 592 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 September , 1998 A-3 593 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF BURGUNDY COURT 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 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 594 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 Comparison of Tax-Deferral % Preferred OP Units and Class I Preferred Stock.......... S-15 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 Our 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 Burgundy Court Associates, 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-29 Expected Benefits of the Offer............... S-30 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-35 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-36 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-40
PAGE ---- Fees and Expenses............................ S-41 Accounting Treatment......................... S-41 DESCRIPTION OF PREFERRED OP UNITS.............. S-41 General...................................... S-41 Ranking...................................... S-41 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70
i 595
PAGE ---- YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71 Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76
PAGE ---- Distributions and Transfers of Units......... S-76 Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 596 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 Burgundy Court Associates, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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-1 597 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)............................... $ $ $ -- $ -- Third Quarter.......................... 41 30 15/16 -- -- 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-2 598 - 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 $3,960 per unit for the six months ended June 30, 1998 (equivalent to $7,920 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 quarter 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 distributions of $ 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 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-3 599 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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-4 600 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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-5 601 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-6 602 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. 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 Unites 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 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. 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 5 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. 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 S-7 603 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 604 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 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 S-9 605 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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. S-10 606 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, 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. 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 S-11 607 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners or from other sources." 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 S-12 608 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. 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." S-13 609 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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-14 610 - 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 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. COMPARISON OF TAX-DEFERRAL % PREFERRED OP UNITS AND CLASS I PREFERRED STOCK There are a number of significant differences between Tax-Deferral % Preferred OP Units and Class I Preferred Stock relating to, among other things, the nature of the investment, voting rights, distributions, liquidity and transfer and redemption rights. See "Comparison of Preferred OP Units and Class I Preferred Stock" for a chart highlighting such differences. 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 S-15 611 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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. S-16 612 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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-17 613 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 is not subject to such limitations. 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives a monthly fee equal to 1% of the gross collected income from your partnership's property as an administrative service fee from your partnership and may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $76,344 in 1996, $79,518 in 1997 and $40,874 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 Your Partnership and its Property. Burgundy Court Associates, L.P. is a Delaware limited partnership which was formed on January 31, 1985 for the purpose of owning and operating a single apartment property S-18 614 located in Cincinnati, Ohio, known as "Burgundy Court Apartments". In 1985, it completed a private placement of units that raised net proceeds of approximately $1,850,000. Burgundy Court Apartments consists of 234 apartment units. Your partnership has no employees. Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2008, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,175,948, payable to FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $112,855, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-19 615 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 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-20 616
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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-21 617 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 618
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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-23 619 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 620 SUMMARY FINANCIAL INFORMATION OF BURGUNDY COURT ASSOCIATES, L.P. The summary financial information of Burgundy Court Associates, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Burgundy Court Associates, L.P. 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 of Your Partnership" included herein. See "Index to Financial Statements." BURGUNDY COURT ASSOCIATES, L.P.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues...................... $ 816,200 $ 781,267 $1,616,282 $1,546,366 $1,475,376 $1,419,600 $1,388,636 Net Income/(Loss)................... 199,383 177,806 282,771 237,063 227,738 100,939 125,490 BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation...................... 1,864,865 1,910,837 1,901,127 1,952,521 2,025,938 1,933,755 1,938,853 Total Assets........................ 2,754,811 2,719,326 2,887,947 2,879,222 3,009,037 3,052,997 3,246,090 Mortgage Notes Payable, including Accrued Interest.................. 3,157,510 3,231,974 3,197,062 3,267,806 3,332,637 3,392,050 3,446,497 Partners' Capital/(Deficit)......... (515,748) (620,096) (515,131) (597,902) (509,965) (597,703) (395,612)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $3,960 $3,960
S-25 621 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. 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 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 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. S-26 622 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 Code. 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 therefore 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 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. 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 S-27 623 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 $3,960 per unit (equivalent to $7,920 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 an 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 S-28 624 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 625 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment properties may 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners or from other sources." 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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. S-30 626 - 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 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 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-31 627 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 628 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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-33 629 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. 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 S-34 630 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." 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. 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. S-35 631 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, (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, or both). 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 9:00 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 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, Denver, Colorado 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. S-36 632 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-37 633 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, which change, 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 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 S-38 634 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 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 S-39 635 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. 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-40 636 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. 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. 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 S-41 637 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 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 S-42 638 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 payment. 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 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. S-43 639 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-44 640 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-45 641 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-46 642 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-47 643 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-48 644 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-49 645 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 646 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-51 647 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 648 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 649 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 650 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 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, a third party expert, that the cash 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 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 $3,960 (equivalent to $7,920 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 S-55 651 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................................ Not available Estimated Liquidation Proceeds............................ $
S-56 652 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. 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-1 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 "-- Fairness Opinion -- S-57 653 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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 September 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 S-58 654 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 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 property was 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 S-59 655 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 656 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Burgundy Court Apartments. 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 (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 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 acquire, develop, The purpose of the AIMCO Operating Partnership is to operate, lease, manage and hold for investment and the conduct any business that may be lawfully conducted by production of income your partnership's property. a limited partnership organized pursuant to the Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as agreement of limited partnership, your partnership may amended from time to time, or any successor to such perform all acts necessary or appropriate in connection statute) (the "Delaware Limited Partnership Act"), therewith and reasonably related thereto, including provided that such business is to be conducted in a acquiring or 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-61 657 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 units for cash and time to the limited partners and to other persons, and notes 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. 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 The general partner, in connection with the management The AIMCO Operating Partnership may lend or contribute of your partnership, are authorized to acquire goods funds or other assets to its subsidiaries or other from or utilize the services of affiliates; provided persons in which it has an equity investment, and such that the terms and conditions of such dealing are as persons may borrow funds from the AIMCO Operating favorable as could reasonably be obtained from third Partnership, on terms and conditions established in the parties offering similar goods and services of similar sole and absolute discretion of the general partner. To quality and reliability. Your partnership may borrow the extent consistent with the business purpose of the money on commercially reasonable terms from one or more AIMCO Operating Partnership and the permitted of the partners without notification to any of the activities of the general partner, the AIMCO Operating other partners and all or a portion of your Partnership may transfer assets to joint ventures, partnership's property may be conveyed as security for limited liability companies, partnerships, any such indebtedness; provided, however, that loans corporations, business trusts or other business from limited partners may be made only to the extent entities in which it is or thereby becomes a allowed by applicable law. The time and amount of the participant upon such terms and subject to such repayment on any loan from a partner will be in the conditions consistent with the AIMCO Operating Part- sole discretion of the general partner but the nership Agreement and applicable law as the general principal and interest will be paid in full prior to partner, in its sole and absolute discretion, believes any distribution of funds to the partners unless such to be advisable. Except as expressly permitted by the loans contain a specific provision to the contrary and AIMCO Operating Partnership Agreement, neither the such lending partner will be considered an unrelated general partner nor any of its affiliates may sell, creditor with respect to such loan to the extent transfer or convey any property to the AIMCO Operating allowed by applicable law. Loans from the general Partnership, directly or indirectly, except pursuant to partner and their affiliates will accrue interest at transactions that are determined by the general partner the greater of 2 1/2% over the prime interest rate in good faith to be fair and reasonable. charged by the Third National Bank in Nashville, or the actual interest cost in borrowing such amounts.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money and as security therefor to mortgage restrictions on borrowings, and the general partner has all or any part of the real property your partnership. full power and authority to borrow money on behalf of However, any amendment to your partnership wraparound the AIMCO Operating Partnership. The AIMCO Operating note (as defined in your partnership's agreement of Partnership has credit agreements that restrict, among limited partnership) requires the consent of holders of other things, its ability to incur indebtedness. See 51% of the outstanding units. "Risk Factors -- Risks of Significant Indebtedness" in the accompanying Prospectus.
S-62 658 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 the limited partners to have access to the with a statement of the purpose of such demand and at current list of the names and addresses of all limited such OP Unitholder's own expense, to obtain a current partners at the principal office of your partnership at list of the name and last known business, residence or all reasonable times. mailing address of the general partner and each other OP Unitholder.
Management Control Subject to the limitations set forth in your All management powers over the business and affairs of partnership's agreement of limited partnership and the AIMCO Operating Partnership are vested in AIMCO-GP, under applicable law, the general partner of your Inc., which is the general partner. No OP Unitholder partnership has the power on behalf of your partnership has any right to participate in or exercise control or to do all things set forth in your partnership's agree- management power over the business and affairs of the ment of limited partnership. The general partner AIMCO Operating Partnership. The OP Unitholders have represent your partnership in all transactions with the right to vote on certain matters described under third parties. No limited partner has any right or "Comparison of Ownership of Your Units and AIMCO OP power to take part in any way in the management of your Units -- Voting Rights" below. The general partner may partnership business except as may be expressly not be removed by the OP Unitholders with or without provided in your partnership's agreement of limited cause. partnership or by applicable statutes. 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 to your partnership or any other partner for partner is not liable to the AIMCO Operating any mistakes or errors in judgment of for any act or Partnership for losses sustained, liabilities incurred omission believed by the general partner in good faith or benefits not derived as a result of errors in to be within the scope of authority conferred upon it judgment or mistakes of fact or law of any act or by your partnership's agreement of limited partnership. omission if the general partner acted in good faith. In addition, your partnership will, to the extent The AIMCO Operating Partnership Agreement provides for permitted by law, indemnify and save harmless the indemnification of AIMCO, or any director or officer of general partner, against and from any personal loss, AIMCO (in its capacity as the previous general partner liability (including attorneys' fee) or damage incurred of the AIMCO Operating Partnership), the general by them as a result of any act or omission in its partner, any officer or director of general partner or capacity as general partner unless such loss, liability the AIMCO Operating Partnership and such other persons or damage results from gross negligence or willful as the general partner may designate from and against misconduct of the general partners. 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 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 whatso-
S-63 659 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ever. 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 for cause upon a vote of the limited partners affairs of the AIMCO Operating Partnership. The general owning 51% of the outstanding units. A general partner partner may not be removed as general partner of the may not transfer, assign, sell, withdraw or otherwise AIMCO Operating Partnership by the OP Unitholders with dispose of its interest unless it obtains the prior or without cause. Under the AIMCO Operating Partnership written consent of those persons owning 51% of the Agreement, the general partner may, in its sole units. Such consent is also necessary for the approval discretion, prevent a transferee of an OP Unit from of a new general partner. A limited partner may not becoming a substituted limited partner pursuant to the transfer his interests without the written consent of AIMCO Operating Partnership Agreement. The general the general partner which may be withheld at the sole partner may exercise this right of approval to deter, discretion of the 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 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 limited partner holding 51% of the in the AIMCO Operating Partnership Agreement, whereby then outstanding units; provided that any amendment the general partner may, without the consent of the OP which affects a partner's interest in the capital Unitholders, amend the AIMCO Operating Partnership profits or Distributable Cash of your partnership may Agreement, amendments to the AIMCO Operating be altered only with such partner's consent. On its own Partnership Agreement require the consent of the motion or upon receipt of a written request for the holders of a majority of the outstanding Common OP adoption of an amendment executed by limited partners Units, excluding AIMCO and certain other limited owning at least 10% of the units then outstanding, the exclusions (a "Majority in Interest"). Amendments to general partner will submit the proposed amendment to the AIMCO Operating Partnership Agreement may be the limited partner for their approval. For the proposed by the general partner or by holders of a purposes of obtaining the consent of the limited Majority in Interest. Following such proposal, the partners, the general partner may require responses general partner will submit any proposed amendment to within a specified time, which may not be less than the OP Unitholders. The general partner will seek the thirty days, and failure to respond within such time written consent of the OP Unitholders on the proposed will constitute a vote which is consistent with the amendment or will call a meeting to vote thereon. See general partner's recommendation with respect to such "Description of OP Units -- Amendment of the AIMCO proposal. Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives a monthly fee equal to 1% of the gross capacity as general partner of the AIMCO Operating collected income from your partnership's property as an Partnership. In addition, the AIMCO Operating Part- administrative service fee. Moreover, the general nership is responsible for all expenses incurred partner or certain affiliates may be entitled to relating to the AIMCO Operating Partnership's ownership compensation for additional services rendered. 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-64 660 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, the liability of each of the limited negligence, no OP Unitholder has personal liability for partners for its share of the losses or debts of your the AIMCO Operating Partnership's debts and partnership is limited to the total capital contribu- obligations, and liability of the OP Unitholders for tions of such limited partners (subject to the terms the AIMCO Operating Partnership's debts and obligations and conditions pursuant to which such capital is generally limited to the amount of their invest- contribution is to be paid) plus, to the extent that ment in the AIMCO Operating Partnership. However, the such limited partner rightfully received the return of limitations on the liability of limited partners for such capital contribution, any sum, not in excess of the obligations of a limited partnership have not been such return, necessary to discharge liabilities of your clearly established in some states. If it were partnership to all creditors who extended credit before determined that the AIMCO Operating Partnership had such return; provided that the liability with respect been conducting business in any state without compli- to rightfully returned capital contributions is limited ance with the applicable limited partnership statute, to one year from the date of such return. 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 must act as fiduciaries with Unless otherwise provided for in the relevant respect to the assets and business of your partnership. partnership agreement, Delaware law generally requires Under your partnership's agreement of limited a general partner of a Delaware limited partnership to partnership, the general partner must devote such of adhere to fiduciary duty standards under which it owes its time and that of its employees to your partnership its limited partners the highest duties of good faith, business as may be reasonably necessary to carry on and fairness and loyalty and which generally prohibit such conduct your partnership's business. The general general partner from taking any action or engaging in partner must use its best effort to do all other things any transaction as to which it has a conflict of and perform such other duties as may be reasonably interest. The AIMCO Operating Partnership Agreement necessary to the successful operation of your expressly authorizes the general partner to enter into, partnership. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 661 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 51% of the outstanding units, the the holders of the Preferred OP respect to certain limited matters limited 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 limitations; dissolve and terminate Units" in the accompanying transactions such as the your partnership; amend your Prospectus. So long as any institution of bankruptcy partnership Wraparound Note (as Preferred OP Units are outstand- proceedings, an assignment for the defined in your partnership's ing, in addition to any other vote benefit of creditors and certain agreement of limited part- or consent of partners required by transfers by the general partner of nership); remove a general partner law or by the AIMCO Operating its interest in the AIMCO Operating for Partnership Agree- Part-
S-66 662 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS cause; approve the retirement of a ment, the affirmative vote or nership or the admission of a general partner and the election of consent of holders of at least 50% successor general partner. a successor general partner; and of the outstanding Preferred OP approve or disapprove the sale of Units will be necessary for Under the AIMCO Operating Partner- your partnership's property. 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 unless, within ninety days adversely affects the rights or any assets of the AIMCO Operating of such occurrence, the limited preferences of the holders of the Partnership (including, but not partners owning 51% of the then Preferred OP Units. The creation or limited to, the exercise or grant outstanding units vote to continue issuance of any class or series of of any conversion, option, the business. If there are no partnership units, including, privilege or subscription right or remaining general partners, all of without limitation, any partner- any other right available in the limited partners must vote to ship units that may have rights connection with any assets at any reform your partnership and by a senior or superior to the Preferred time held by the AIMCO Operating vote of the holders of 51% of the OP Units, shall not be deemed to Partnership) or the merger, outstanding units, elect one or materially adversely affect the consolidation, reorganization or more successor general partners to rights or preferences of the other combination of the AIMCO continue the business of your holders of Preferred OP Units. With Operating Partnership with or into partnership. In the event of such respect to the exercise of the another entity, all without the reformation, your partnership will above described voting rights, each consent of the OP Unitholders. dissolve and all of the assets and Preferred OP Units shall have one liabilities of your partnership (1) vote per Preferred OP Unit. The general partner may cause the will be contributed to a new dissolution of the AIMCO Operating partnership which will be formed Partnership by an "event of and all parties to your withdrawal," as defined in the partnership's agreement of limited Delaware Limited Partnership Act partnership will become parties to (including, without limitation, such new partnership. 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 will be distributed quarterly by provided, however, that at any time portion as the general partner may the general partners, on or about and from time to time on or after in its sole and absolute discretion January 15, April 15, July 15 and the fifth anniversary of the issue determine, of Available Cash (as October 15. 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. No limited U.S. Treasury notes with a maturity OP Units on the record date partner has any priority over any of five years, and (ii) the annual established by the general partner other limited partner as to distri- dividend rate on the most recently with respect to such quarter, in butions nor does any limited issued AIMCO non-convertible accordance with their respective partner have the right to demand preferred stock which ranks on a interests in the AIMCO Operating that distributions to it be in any parity with its Class H Cumu- Partnership on such record date. form other than cash. Your Holders of any other Pre- partnership has made distributions in the
S-67 663 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS past and is projected to make lative Preferred Stock. Such ferred OP Units issued in the distributions in 1998. 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 and be Preferred OP Units and the OP Units. The AIMCO Operating Part- substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the such person if: (1) the assignee on any securities exchange. The transferability of the OP Units. agrees to be bound by the terms of Preferred OP Units are subject to Until the expiration of one year your partnership's agreement of restrictions on transfer as set from the date on which an OP limited partnership and represents forth in the AIMCO Operating Unitholder acquired OP Units, that he is over 18 years of age, is Partnership Agreement. subject to certain exceptions, such a citizen and resident of the OP Unitholder may not transfer all United States, has sufficient Pursuant to the AIMCO Operating or any portion of its OP Units to financial resources to maintain the Partnership Agreement, until the any transferee without the consent interest and is acquiring the expiration of one year from the of the general partner, which interest for investment and not for date on which a holder of Preferred consent may be withheld in its sole distribution, (2) a written assign- OP Units acquired Preferred OP and absolute discretion. After the ment has been duly executed and ac- Units, subject to certain expiration of one year, such OP knowledged by the assignor and exceptions, such holder of Unitholder has the right to assignee and has been delivered to Preferred OP Units may not transfer transfer all or any portion of its the general partner, (3) the all or any portion of its Pre- OP Units to any person, subject to written approval of the general ferred OP Units to any transferee the satisfaction of certain partner which may be withheld in without the consent of the general conditions specified in the AIMCO the sole and absolute discretion of partner, which consent may be Operating Partnership Agreement, the general partner has been withheld in its sole and absolute including the general partner's granted and (4) the assignor and discretion. After the expiration of right of first refusal. See assignee have complied with such one year, such holders of Preferred "Description of OP Units -- other conditions as set forth in OP Units has the right to transfer Transfers and Withdrawals" in the your partnership's agreement of all or any portion of its Preferred accompanying Prospectus. limited partnership. The general OP Units to any person, subject to partner the satisfaction of
S-68 664 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS will withhold its consent if the certain conditions specified in the After the first anniversary of transferee is not authorized to AIMCO Operating Partnership Agree- becoming a holder of Common OP acquire the units or does not have ment, including the general Units, an OP Unitholder has the sufficient financial resources, the partner's right of first refusal. right, subject to the terms and transfer would result in your conditions of the AIMCO Operating partnership being taxed as a After a one-year holding period, a Partnership Agreement, to require corporation, the transfer would holder may redeem Preferred OP the AIMCO Operating Partnership to violate Federal or state securities Units and receive in exchange redeem all or a portion of the laws or the transfer would cause a therefor, at the AIMCO Operating Common OP Units held by such party termination of your partnership for Partnership's option, (i) subject in exchange for a cash amount based tax purposes. 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 There are no redemption rights Liquidation Preference of the OP Units -- Redemption Rights" in associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 665 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives a monthly fee equal to 1% of the gross collected income from your partnership's property as an administrative service fee from your partnership and may be reimbursed for expenses generated in that capacity. The property manager received management fees of $76,344 in 1996, $79,518 in 1997 and $40,874 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's 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'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 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-70 666 YOUR PARTNERSHIP GENERAL Burgundy Court Associates, L.P. is a Delaware limited partnership which raised net proceeds of approximately $1,850,000 in 1985 through a private offering. The promoter for the private offering of your partnership was Jacques-Miller. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 53 limited partners of your partnership and a total of 50 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on January 31, 1985 for the purpose of owning and operating a single apartment property located in Cincinnati, Ohio, known as "Burgundy Court Apartments". Your partnership's property consists of 234 apartment units. There are 32 one-bedroom apartments, 140 two-bedroom apartments and 62 three-bedroom apartments. The total rentable square footage of your partnership's property is 210,574 square feet. Your partnership's property had an average occupancy rate of approximately 94.44% in 1996 and 94.44% in 1997. The average annual rent per apartment unit is approximately $6,569. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $76,344, $79,518 and $40,874, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2008 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 667 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,175,948, payable to FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $112,855, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. S-72 668 SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. The 1994 and 1993 amounts have been derived from audited financial statements which are not included in this Prospectus Supplement. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. Below is selected financial information for Burgundy Court Associates, L.P. derived from the financial statements described above. See "Index to Financial Statements."
BURGUNDY COURT ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 471,433 $ 366,665 $ 500,457 $ 481,291 $ 566,706 $ 689,475 $ 784,730 Land & Building.............. 5,584,074 5,439,513 5,525,069 5,385,930 5,278,642 4,972,436 4,680,566 Accumulated Depreciation..... (3,719,209) (3,528,675) (3,623,942) (3,433,409) (3,252,704) (3,038,681) (2,741,713) Other Assets................. 418,512 441,824 486,363 445,410 416,393 429,767 522,507 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 2,754,810 $ 2,719,326 $ 2,887,947 $ 2,879,222 $ 3,009,037 $ 3,052,997 $ 3,246,090 =========== =========== =========== =========== =========== =========== =========== LIABILITIES AND PARTNERS' DEFICIT Mortgage & Accrued Interest................... $ 3,146,083 $ 3,231,974 $ 3,197,062 $ 3,267,806 $ 3,332,637 $ 3,392,050 $ 3,446,497 Other Liabilities............ 124,475 107,448 206,016 209,318 186,365 258,650 195,205 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... $ 3,270,558 $ 3,339,422 $ 3,403,078 $ 3,477,124 $ 3,519,002 $ 3,650,700 $ 3,641,702 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $ (515,748) $ (620,096) $ (515,131) $ (597,902) $ (509,965) $ (597,703) $ (395,612) =========== =========== =========== =========== =========== =========== ===========
BURGUNDY COURT ASSOCIATES, L.P. ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue..................... $ 784,580 $ 752,734 $1,541,890 $1,468,687 $1,401,205 $1,346,203 $1,321,019 Other Income....................... 31,620 28,533 74,392 77,679 74,171 73,397 67,617 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. $ 816,200 $ 781,267 $1,616,282 $1,546,366 $1,475,376 $1,419,600 $1,388,636 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 302,184 298,530 669,873 663,184 572,345 568,309 564,829 General & Administrative........... 28,940 21,368 52,232 50,169 53,039 37,443 56,930 Depreciation....................... 95,267 95,267 190,533 180,705 214,023 296,968 274,797 Interest Expense................... 126,110 129,830 296,624 302,991 308,410 313,127 304,875 Property Taxes..................... 64,316 58,466 124,249 112,254 99,821 102,816 99,872 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ $ 616,817 $ 603,461 $1,333,511 $1,309,303 $1,247,638 $1,318,661 $1,263,146 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income................ $ 199,383 $ 177,806 $ 282,771 $ 237,063 $ 227,738 $ 100,939 $ 125,490 ========== ========== ========== ========== ========== ========== ==========
S-73 669 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $199,383 for the six months ended June 30, 1998, compared to $177,806 for the six months ended June 30, 1997. The increase in net income of $21,577, or 12.14% was primarily the result of an increase in rental revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $816,200 for the six months ended June 30, 1998, compared to $781,267 for the six months ended June 30, 1997, an increase of $34,933, or 4.47%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $302,184 for the six months ended June 30, 1998, compared to $298,530 for the six months ended June 30, 1997, an increase of $3,654 or 1.22%. Management expenses totaled $40,874 for the six months ended June 30, 1998, compared to $39,028 for the six months ended June 30, 1997, an increase of $1,846, or 4.73%. General and Administrative Expenses General and administrative expenses totaled $28,940 for the six months ended June 30, 1998 compared to $21,368 for the six months ended June 30, 1997, an increase of $7,572 or 35.44%. The increase was primarily the result of increased license fees and increased general partner reimbursements. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $126,110 for the six months ended June 30, 1998, compared to $129,830 for the six months ended June 30, 1997, a decrease of $3,720, or 2.87%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $282,771 for the year ended December 31, 1997, compared to $237,063 for the year ended December 31, 1996. The increase in net income of $45,708, or 19.28% was primarily the result of increased revenues due to rental rate increases during 1997. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,616,282 for the year ended December 31, 1997, compared to $1,546,366 for the year ended December 31, 1996, an increase of $69,916, or 4.52%. S-74 670 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $669,873 for the year ended December 31, 1997, compared to $663,184 for the year ended December 31, 1996, an increase of $6,689 or 1.01%. Management expenses totaled $79,518 for the year ended December 31, 1997, compared to $76,344 for the year ended December 31, 1996, an increase of $3,174, or 4.16%. General and Administrative Expenses General and administrative expenses totaled $52,232 for the year ended December 31, 1997 compared to $50,169 for the year ended December 31, 1996, an increase of $2,063 or 4.11%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $296,624 for the year ended December 31, 1997, compared to $302,991 for the year ended December 31, 1996, a decrease of $6,367, or 2.10%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $237,063 for the year ended December 31, 1996, compared to $227,738 for the year ended December 31, 1995, an increase in net income of $9,325, or 4.09%. Revenues Rental and other property revenues from the partnership's property totaled $1,546,366 for the year ended December 31, 1996, compared to $1,475,376 for the year ended December 31, 1995, an increase of $70,990, or 4.81%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $663,184 for the year ended December 31, 1996, compared to $572,345 for the year ended December 31, 1995, an increase of $90,839 or 15.87%. The increase is due primarily to an exterior property improvement project during 1996. Management expenses totaled $76,344 for the year ended December 31, 1996, compared to $72,215 for the year ended December 31, 1995, an increase of $4,129, or 5.72%. The increase is due primarily to the increased revenues. General and Administrative Expenses General and administrative expenses totaled $50,169 for the year ended December 31, 1996 compared to $53,039 for the year ended December 31, 1995, a decrease of $2,870 or 5.41%. The decrease is primarily due to the timing of audit fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $302,991 for the year ended December 31, 1996, compared to $308,410 for the year ended December 31, 1995, a decrease of $5,419, or 1.76%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $471,433 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on S-75 671 outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 are not liable to your partnership or any other partner for any mistakes or errors in judgment of for any act or omission believed by the general partner in good faith to be within the scope of authority conferred upon it by your partnership's agreement of limited 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 owned by AIMCO. See "Conflicts of Interest". Your partnership will, to the extent permitted by law, indemnify and save harmless the general partner, against and from any personal loss, liability (including attorneys' fee) or damage incurred by them as a result of any act or omission in its capacity as general partner unless such loss, liability or damage results from gross negligence or willful misconduct of the general partner. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $30,328.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $6,000 1995........................................................ 2,772 1996........................................................ 6,435 1997........................................................ 3,960 1998 (through June 30)...................................... 3,960
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). S-76 672 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 included all monies paid to the general partner by our partnership, including reimbursement of expenses) in respect of its capacity general partner interest of partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995............................................ 44,298 1996............................................ 42,194 1997............................................ 42,463 1998 (through June 30)..........................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995............................................ $72,215 1996............................................ 76,344 1997............................................ 79,518 1998 (through June 30).......................... 40,874
If the offer had been made in such prior periods, there would not have been any material difference in the compensation and distributions that would have been paid to the general partner of your partnership, or the company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-77 673 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 Burgundy Court Associates, L.P. at December 31, 1997, 1996 and 1995, and for the years then ended, appearing in this Prospectus Supplement have been audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-78 674 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-6 Balance Sheets as of December 31, 1997 and 1996............. F-7 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-8 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-9 Notes to Financial Statements............................... F-10 Independent Auditors' Report................................ F-14 Balance Sheets as of December 31, 1996 and 1995............. F-15 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-16 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-17 Notes to Financial Statements............................... F-18
F-1 675 BURGUNDY COURT, LIMITED CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 471,433 Receivables and Deposits.................................... 92,010 Investments................................................. 0 Restricted Escrows.......................................... 254,750 Other Assets................................................ 71,752 Investment Property: Land...................................................... $ 330,171 Building and related personal property.................... 5,253,903 ----------- 5,584,074 Less: Accumulated depreciation............................ (3,719,209) 1,864,865 ----------- ----------- Total Assets...................................... $ 2,754,810 =========== LIABILITIES AND PARTNERS' DEFICIT Other Accrued Liabilities................................... 21,639 Property Taxes Payable...................................... 64,316 Tenant Security Deposits.................................... 38,520 Notes Payable............................................... 3,146,083 Partners' Deficit........................................... (515,748) ----------- Total Liabilities and Partners' Deficit........... $ 2,754,810 ===========
See notes to interim financial statements. F-2 676 BURGUNDY COURT, LIMITED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $784,580 $752,734 Other Income.............................................. 31,620 28,533 Gain (Loss) on Disposition of Property.................... -- -- Casualty Gain/Loss........................................ -- -- -------- -------- Total Revenues.................................... 816,200 781,267 Expenses: Operating Expenses........................................ 302,184 298,530 General and Administrative Expenses....................... 28,940 21,368 Depreciation Expense...................................... 95,267 95,267 Interest Expense.......................................... 126,110 129,830 Property Tax Expense...................................... 64,316 58,466 -------- -------- Total Expenses.................................... 616,817 603,461 Net Income (Loss)................................. $199,383 $177,806 ======== ========
See notes to interim financial statements. F-3 677 BURGUNDY COURT, LIMITED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 --------- --------- Operating Activities: Net Income (loss)......................................... $ 199,383 $ 177,806 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 95,267 100,953 Changes in accounts: Receivables and deposits and other assets............ 73,473 (9,276) Accounts Payable and accrued expenses................ (81,541) (90,444) --------- --------- Net cash provided by (used in) operating activities...................................... 286,582 179,039 Investing Activities: Property improvements and replacements.................... (59,005) (53,583) Net (increase)/decrease in restricted escrows............. (5,622) 7,177 --------- --------- Net cash provided by (used in) investing activities...................................... (64,627) (46,406) Financing Activities: Payments on mortgage...................................... (50,979) (47,259) Partners' Distributions................................... (200,000) (200,000) --------- --------- Net cash provided by (used in) financing activities...................................... (250,979) (247,259) --------- --------- Net increase (decrease) in cash and cash equivalents..................................... (29,024) (114,626) Cash and cash equivalents at beginning of year.............. 500,457 481,291 --------- --------- Cash and cash equivalents at end of period.................. $ 471,433 $ 366,665 ========= =========
See notes to interim financial statements. F-4 678 BURGUNDY COURT, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Burgundy Court Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 679 INDEPENDENT AUDITORS' REPORT General Partners Burgundy Court, Limited: We have audited the accompanying balance sheets of Burgundy Court, Limited as of December 31, 1997 and 1996 and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, a well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Burgundy Court, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 20, 1998 F-6 680 BURGUNDY COURT, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 500,457 $ 481,291 Receivables and deposits.................................... 161,263 113,559 Restricted escrows (Note B)................................. 249,128 251,130 Other assets................................................ 75,972 80,721 Investment properties (Note C): Land...................................................... 330,171 330,171 Buildings and related personal property................... 5,194,898 5,055,759 ----------- ----------- 5,525,069 5,385,930 Less accumulated depreciation............................. (3,623,942) (3,433,409) ----------- ----------- 1,901,127 1,952,521 ----------- ----------- $ 2,887,947 $ 2,879,222 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 18,347 $ 19,315 Tenant security deposit liabilities....................... 39,480 41,177 Accrued taxes............................................. 122,506 111,431 Other liabilities......................................... 25,683 37,395 Mortgage notes payable (Note C)........................... 3,197,062 3,267,806 Partners' deficit........................................... (515,131) (597,902) ----------- ----------- $ 2,887,947 $ 2,879,222 =========== ===========
See Accompanying Notes to Financial Statements F-7 681 BURGUNDY COURT, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Revenues: Rental income............................................. $1,541,890 $1,468,687 Other income.............................................. 74,392 77,679 ---------- ---------- Total revenues......................................... 1,616,282 1,546,366 ---------- ---------- Expenses: Operating (Note D)........................................ 669,873 663,184 General and administrative (Note D)....................... 52,232 50,169 Depreciation.............................................. 190,533 180,705 Interest.................................................. 296,624 302,991 Property taxes............................................ 124,249 112,254 ---------- ---------- Total expenses......................................... 1,333,511 1,309,303 ---------- ---------- Net income................................................ 282,771 237,063 Distributions to partners................................... (200,000) (325,000) Partners' deficit at beginning of year...................... (597,902) (509,965) ---------- ---------- Partners' deficit at end of year............................ $ (515,131) $ (597,902) ========== ==========
See Accompanying Notes to Financial Statements F-8 682 BURGUNDY COURT, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Cash flows from operating activities: Net income................................................ $ 282,771 $ 237,063 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation......................................... 190,533 180,705 Amortization of discounts and loan costs............. 38,788 38,126 Change in accounts: Receivables and deposits............................. (47,704) 4,941 Other assets......................................... (8,441) -- Accounts payable..................................... (968) 13,516 Tenant security deposit liabilities.................. (1,697) (5,175) Accrued taxes........................................ 11,075 12,495 Other liabilities.................................... (11,712) _2,117 --------- --------- Net cash provided by operating activities......... 452,645 483,788 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (139,139) (107,288) Deposits to restricted escrows............................ (10,240) (10,396) Receipts from restricted escrows.......................... 12,242 9,145 --------- --------- Net cash used in investing activities............. (137,137) (108,539) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (96,342) (89,312) Distributions to partners................................. (200,000) (325,000) --------- --------- Net cash used in financing activities............. (296,342) (414,312) --------- --------- Net increase (decrease) in cash and cash equivalents........ 19,166 (39,063) Cash and cash equivalents at beginning of year.............. 481,291 520,354 --------- --------- Cash and cash equivalents at end of year.................... $ 500,457 $ 481,291 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 257,836 $ 264,865 ========= =========
See Accompanying Notes to Financial Statements F-9 683 BURGUNDY COURT, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Burgundy Court, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated January 31, 1985. The Partnership owns and operates a 234 unit apartment complex, Burgundy Court Apartments, in Cincinnati, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the straight-line method based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $67,530 and $80,721, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-10 684 BURGUNDY COURT, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in calendar year 1997 and excess funds were returned for property operations in 1997. .................................................... $ -- $ 12,242 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. ................................................ 249,128 238,888 -------- -------- $249,128 $251,130 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $28,800, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,227,283 $3,323,625 Second mortgage note payable in interest only monthly installments of $715, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 112,855 112,855 ---------- ---------- Principal balance at year end............................... 3,340,138 3,436,480 Less unamortized discount................................... (143,076) (168,674) ---------- ---------- $3,197,062 $3,267,806 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998................................................... $ 103,924 1999................................................... 112,103 2000................................................... 120,927 2001................................................... 130,444 2002................................................... 2,872,740 ---------- $3,340,138 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the F-11 685 BURGUNDY COURT, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- ------- ------- Management fee........................................... $79,518 $76,344 Partnership administration fee........................... $14,501 $15,268 Reimbursement for services of affiliates................. $27,124 $26,926 Construction services reimbursement...................... $ 838 $ --
F-12 686 BURGUNDY COURT, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-13 687 INDEPENDENT AUDITORS' REPORT General Partners Burgundy Court, Limited: We have audited the accompanying balance sheets of Burgundy Court, Limited as of December 31, 1996 and 1995 and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Burgundy Court, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 25, 1997 F-14 688 BURGUNDY COURT, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 481,291 $ 520,354 Restricted -- tenant security deposits.................... 41,177 46,352 Accounts receivable......................................... 2,333 227 Escrow for taxes............................................ 70,049 71,921 Restricted escrows (Note B)................................. 251,130 249,879 Other assets................................................ 80,721 94,366 Investment properties (Note C): Land...................................................... 330,171 330,171 Buildings and related personal property................... 5,055,759 4,948,471 ----------- ----------- 5,385,930 5,278,642 Less accumulated depreciation............................. (3,433,409) (3,252,704) ----------- ----------- 1,952,521 2,025,938 ----------- ----------- $ 2,879,222 $ 3,009,037 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 19,315 $ 5,799 Tenant security deposits.................................. 41,177 46,352 Accrued taxes............................................. 111,431 98,936 Other liabilities......................................... 37,395 35,278 Mortgage notes payable (Note C)........................... 3,267,806 3,332,637 Partners' deficit........................................... (597,902) (509,965) ----------- ----------- $ 2,879,222 $ 3,009,037 =========== ===========
See Accompanying Notes to Financial Statements F-15 689 BURGUNDY COURT, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Revenues: Rental income............................................. $1,468,687 $1,401,205 Other income.............................................. 77,679 74,171 ---------- ---------- Total revenues......................................... 1,546,366 1,475,376 ---------- ---------- Expenses: Operating (Note D)........................................ 453,897 421,913 General and administrative (Note D)....................... 50,169 53,039 Maintenance............................................... 209,287 150,432 Depreciation.............................................. 180,705 214,023 Interest.................................................. 302,991 308,410 Property taxes............................................ 112,254 99,821 ---------- ---------- Total expenses......................................... 1,309,303 1,247,638 ---------- ---------- Net income.................................................. 237,063 227,738 Distributions to partners................................... (325,000) (140,000) Partners' deficit at beginning of year...................... (509,965) (597,703) ---------- ---------- Partners' deficit at end of year............................ $ (597,902) $ (509,965) ========== ==========
See Accompanying Notes to Financial Statements F-16 690 BURGUNDY COURT, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Cash flows from operating activities: Net income................................................ $ 237,063 $ 227,738 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 180,705 214,023 Amortization of discounts and loan costs............... 38,126 37,030 Change in accounts: Restricted cash...................................... 5,175 2,236 Accounts receivable.................................. (2,106) (227) Escrow for taxes..................................... 1,872 (12,190) Accounts payable..................................... 13,516 (8,755) Tenant security deposit liabilities.................. (5,175) (538) Accrued taxes........................................ 12,495 (3,095) Other liabilities.................................... 2,117 (59,897) --------- --------- Net cash provided by operating activities......... 483,788 396,325 --------- --------- Cash flows from investing activities: Property investments and replacements..................... (107,288) (306,206) Deposits to restricted escrows............................ (10,396) (9,021) Receipts from restricted escrows.......................... 9,145 21,166 --------- --------- Net cash used in investing activities............. (108,539) (294,061) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (89,312) (82,797) Distributions to partners................................. (325,000) (140,000) --------- --------- Net cash used in financing activities............. (414,312) (222,797) --------- --------- Net decrease in cash........................................ (39,063) (120,533) Cash and cash equivalents at beginning of year.............. 520,354 640,887 --------- --------- Cash and cash equivalents at end of year.................... $ 481,291 $ 520,354 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 264,865 $ 271,380 ========= =========
See Accompanying Notes to Financial Statements F-17 691 BURGUNDY COURT, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Burgundy Court, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated January 31, 1985. The Partnership owns and operates a 234 unit apartment complex, Burgundy Court Apartments, in Cincinnati, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the straight-line method based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1996 and 1995 consist of deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. F-18 692 BURGUNDY COURT, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements will be completed in calendar year 1997 and any excess funds will be returned for property operations in 1997. ...................................... $ 12,242 $ 11,857 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. ................................................ 238,888 238,022 -------- -------- $251,130 $249,879 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $28,800, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,323,625 $3,412,937 Second mortgage note payable in interest only monthly installments of $715, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 112,855 112,855 ---------- ---------- Principal balance at year end............................... 3,436,480 3,525,792 Less unamortized discount................................... (168,674) (193,155) ---------- ---------- $3,267,806 $3,332,637 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 96,342 1998..................................................... 103,924 1999..................................................... 112,103 2000..................................................... 120,927 2001..................................................... 130,444 Thereafter............................................... 2,872,740 ---------- $3,436,480 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-19 693 BURGUNDY COURT, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee........................................... $76,344 $72,215 Partnership administration fee........................... $15,268 $14,442 Reimbursement for services of affiliates................. $26,926 $23,766 Construction fee......................................... $ -- $ 6,090
F-20 694 APPENDIX A-1 OPINION OF ROBERT A. STANGER & CO., INC. PRELIMINARY FORM OF OPINION AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Burgandy Court Associates, L.P. 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 Burgandy Court Associates, L.P. (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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 695 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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-2 696 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 September , 1998 A-3 697 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CALMARK/FORT COLLINS, 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 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 OUR OFFER CONSIDERATION WILL BE REDUCED OFFER AND TO RENDER AN OPINION AS TO THE FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR FAIRNESS TO YOU OF THE OFFER CONSIDERATION PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR FROM A FINANCIAL POINT OF VIEW. OFFER. YOU WILL NOT PAY ANY FEES OR OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER, COMMISSIONS IF YOU TENDER YOUR UNITS. COLORADO TIME, ON , 1998, UNLESS WE EXTEND THE DEADLINE.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 698 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 Comparison of Tax-Deferral % Preferred OP Units and Class I Preferred Stock.......... S-16 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-20 Summary Financial Information of AIMCO Properties, L.P............................ S-21 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-23 Summary Financial Information of Calmark/Fort Collins, Ltd............................... S-26 Comparative Per Unit Data.................... S-26 THE AIMCO OPERATING PARTNERSHIP................ S-27 RISK FACTORS................................... S-27 Risks to Unitholders Who Tender Their Units in the Offer............................... S-27 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-29 BACKGROUND AND REASONS FOR THE OFFER........... S-30 Background of the Offer...................... S-30 Alternatives Considered...................... S-31 Expected Benefits of the Offer............... S-32 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-36 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-37 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-41 Fees and Expenses............................ S-42
PAGE ---- Accounting Treatment......................... S-42 DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-43 Distributions................................ S-43 Allocation................................... S-44 Liquidation Preference....................... S-44 Redemption................................... S-45 Voting Rights................................ S-45 Restrictions on Transfer..................... S-45 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-48 CERTAIN FEDERAL INCOME TAX MATTERS............. S-51 Tax Consequences of Exchanging Units Solely for OP Units............................... S-51 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-51 Tax Consequences of Exchanging Units Solely for Cash................................... S-52 Adjusted Tax Basis........................... S-52 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-53 Passive Activity Losses...................... S-53 Foreign Offerees............................. S-54 Certain Tax Consequences to Non-Tendering and Partially-Tendering Unitholders............ S-54 VALUATION OF UNITS............................. S-55 FAIRNESS OF THE OFFER.......................... S-56 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-56 Fairness to Unitholders who Tender their Units...................................... S-57 Fairness to Unitholders who do not Tender their Units................................ S-58 Comparison of Consideration to Alternative Consideration.............................. S-58 Allocation of Consideration.................. S-59 STANGER ANALYSIS............................... S-59 Experience of Stanger........................ S-60 Summary of Materials Considered.............. S-60 Summary of Reviews........................... S-61 Conclusions.................................. S-61 Assumptions, Limitations and Qualifications............................. S-61 Compensation and Material Relationships...... S-62 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-63 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-68 CONFLICTS OF INTEREST.......................... S-72 Conflicts of Interest with Respect to the Offer...................................... S-72 Conflicts of Interest that Currently Exist for Your Partnership....................... S-72 Competition Among Properties................. S-72 Features Discouraging Potential Takeovers.... S-72
i 699
PAGE ---- Future Exchange Offers....................... S-72 YOUR PARTNERSHIP............................... S-73 General...................................... S-73 Your Partnership and its Property............ S-73 Property Management.......................... S-73 Investment Objectives and Policies; Sale or Financing of Investments................... S-73 Capital Replacement.......................... S-74 Borrowing Policies........................... S-74 Competition.................................. S-74 Legal Proceedings............................ S-74 Selected Financial Information............... S-74 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-76
PAGE ---- Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions and Transfers of Units......... S-78 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-80 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
ii 700 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 Calmark/Fort Collins, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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-1 701 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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-2 702 - 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 $14,705.88 per unit for the six months ended June 30, 1998 (equivalent to $29,411.76 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 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. 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 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. 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 S-3 703 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer 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. In addition, 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-4 704 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 100% of 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? 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: 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 S-5 705 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-6 706 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. 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. 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 5 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. 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 S-7 707 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. 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 Code. The particular tax consequences to you of the exchange 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-8 708 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the 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-9 709 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. S-10 710 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, 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-11 711 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 712 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners or from other sources. 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-13 713 - 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. S-14 714 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 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 S-15 715 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. COMPARISON OF TAX-DEFERRAL % PREFERRED OP UNITS AND CLASS I PREFERRED STOCK There are a number of significant differences between Tax-Deferral % Preferred OP Units and Class I Preferred Stock relating to, among other things, the nature of the investment, voting rights, distributions, liquidity and transfer and redemption rights. See "Comparison of Preferred OP Units and Class I Preferred Stock" for a chart highlighting such differences. 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" OF 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 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. In reaching the capitalization rate, we considered your property's physical condition, location, and above-market mortgage interest rate. 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $
S-16 716 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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 Consideration 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 S-17 717 - 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-1 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, there is no limitation on the liability of your partnership's general partners to your partnership or any of the limited partners for acts performed in their capacity as general partner. The general partner of the AIMCO Operating Partnership has no liability to the AIMCO Operating Partnership or any of the holders of OP Units for acts performed by the general partner in good faith. 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 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 generated in that capacity. The property manager received management fees of $30,621 in 1996, $32,886 in 1997 and $17,036 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. S-18 718 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 Your Partnership and its Property. Calmark/Fort Collins, Ltd. is a California limited partnership which was formed on January 29, 1982 for the purpose of owning and operating a single apartment property located in Fort Collins, Colorado, known as "Scotch Pines East." In 1982, it completed a private placement of units that raised net proceeds of approximately $1,411,000. Scotch Pines East consists of 102 apartment units. Your partnership has no employees. Property Management. Since 1992, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2031, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,786,929, payable to Lehman, which bears interest at a rate of 7.34%. The mortgage debt is due in December 2004. Your partnership also has a second mortgage note outstanding of $2,786,929, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-19 719 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-20 720 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 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-21 721
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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-22 722 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-23 723
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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-24 724 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-25 725 SUMMARY FINANCIAL INFORMATION OF CALMARK/FORT COLLINS, LTD. The summary financial information of Calmark/Fort Collins, Ltd. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Calmark/Fort Collins, Ltd. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on 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 of Your Partnership" included herein. See "Index to Financial Statements." CALMARK/FORT COLLINS, LTD.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues................ $ 336,537 $ 322,962 $ 661,502 $ 606,931 $ 577,843 $ 527,740 $ 477,630 Net Income/(Loss)............. (4,103) 8,501 (158,348) (15,197) (75,425) (101,898) (124,367) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation.... 287,309 344,612 307,466 389,212 473,793 582,346 681,202 Total Assets.................. 583,884 512,894 1,128,407 567,931 640,874 752,099 856,415 Mortgage Notes Payable, including Accrued Interest.................... 2,804,056 1,892,499 2,800,000 1,890,607 1,908,194 1,926,141 1,940,681 Partners' Capital/(Deficit)... $(2,246,072) $(1,575,120) $(1,741,969) $(1,583,621) $(1,568,424) $(1,492,999) $(1,391,101)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $14,705.88 $0
S-26 726 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. 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 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 price 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, 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 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. S-27 727 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 Code. 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 therefore 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 apartment property. In contrast, the AIMCO Operating Partnership is in the business of acquiring, S-28 728 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, and distributions with respect to your units for the six months ended June 30, 1998 were $3,460 per unit (equivalent to $7,920 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 an 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 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 S-29 729 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently own do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. S-30 730 ALTERNATIVES CONSIDERED 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. 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 S-31 731 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 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 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-32 732 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 and the expiration of the offer. See "Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. S-33 733 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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-34 734 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. 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 S-35 735 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." 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. 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. S-36 736 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, (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 9:00 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 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, Denver, Colorado 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. S-37 737 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-38 738 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, which change, 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 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 S-39 739 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 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 S-40 740 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-41 741 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. 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. DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. S-42 742 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 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 S-43 743 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 payment. 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 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 S-44 744 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-45 745 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-46 746 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-47 747 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-48 748 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-49 749 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-50 750 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-51 751 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-52 752 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-53 753 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 UNITHOLDERS 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 unitholders who do not tender all of their units (a "Remaining Unitholders") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Unitholder will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Unitholders in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Unitholder'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 Unitholders 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 Unitholders 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 unitholder 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 unitholders. In the case of a Remaining Unitholder 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 unitholder's taxable income for the year of Termination. S-54 754 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-55 755 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-56 756 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 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, a third party expert, 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 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 $3,460 (equivalent to $7,920 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-57 757 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-58 758 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 Consideration.................................... $ 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. 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-59 759 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-60 760 performed a site inspection 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 September 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 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 property was 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 S-61 761 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-62 762 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Scotch Pines East. 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, 2031. 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, directly The purpose of the AIMCO Operating Partnership is to or indirectly, develop, own, hold, maintain, operate conduct any business that may be lawfully conducted by for the production of income and dispose of property a limited partnership organized pursuant to the situated in the United States. Subject to restrictions Delaware Revised Uniform Limited Partnership Act (as contained in your partnership's agreement of limited amended from time to time, or any successor to such partnership, your partnership may perform all acts statute) (the "Delaware Limited Partnership Act"), necessary or appropriate in connection therewith and provided that such business is to be conducted in a reasonably related thereto, including borrowing money, manner that permits AIMCO to be qualified as a REIT, creating liens and investing funds in financial unless AIMCO ceases to qualify as a REIT. The AIMCO instruments. 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-63 763 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 20 nor more than 34 time to the limited partners and to other persons, and units for cash and notes to selected persons who to admit such other persons as additional limited fulfill the requirements set forth in your partners, on terms and conditions and for such capital partnership's agreement of limited partnership. The contributions as may be established by the general capital contribution need not be equal for all limited partner in its sole discretion. The net capital partners and no action or consent is required in contribution need not be equal for all OP Unitholders. connection with the admission of any additional limited No action or consent by the OP Unitholders is required partners. in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management The general partner is also authorized to issue by the AIMCO GP" in the accompanying Prospectus. additional units for sale from time to time, the Subject to Delaware law, any additional partnership number, price and terms of which shall be determined at interests may be issued in one or more classes, or one the sole discretion of the general partner. In certain or more series of any of such classes, with such circumstances set forth in your partnership's agreement designations, preferences and relative, partici- of limited partnership, limited partners who purchased pating, optional or other special rights, powers and the units described in the previous paragraph may duties as shall be determined by the general partner, possess preemptive rights in connection with the sale in its sole and absolute discretion without the of additional units. 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 of your partnership may contract The AIMCO Operating Partnership may lend or contribute with affiliated persons for the management or funds or other assets to its subsidiaries or other supervision of any or all of the assets of your persons in which it has an equity investment, and such partnership or for the performance of any other persons may borrow funds from the AIMCO Operating services which the general partner deem necessary or Partnership, on terms and conditions established in the advisable for the operation of your partnership. Any sole and absolute discretion of the general partner. To and all compensation paid to such affiliated persons in the extent consistent with the business purpose of the connection with services performed for your partnership AIMCO Operating Partnership and the permitted must be reasonable and fair to your partnership and the activities of the general partner, the AIMCO Operating partners. Such contracts between your partnership and Partnership may transfer assets to joint ventures, the general partner or any affiliates must provide that limited liability companies, partnerships, they may be cancelled at any time by your partnership corporations, business trusts or other business without penalty upon 60 days prior written notice. In entities in which it is or thereby becomes a addition, the general partner and its affiliates may participant upon such terms and subject to such lend money to your partnership which will be repaid in conditions consistent with the AIMCO Operating Part- accordance with the terms of the advances out of the nership Agreement and applicable law as the general gross receipts of your partnership with interest at the partner, in its sole and absolute discretion, believes then prevailing commercial rate or at the highest rate to be advisable. Except as expressly permitted by the permitted by the applicable usury law, whichever is AIMCO Operating Partnership Agreement, neither the less. Your partnership may lend working capital general partner nor any of its affiliates may sell, reserves which are not needed to meet partnership transfer or convey any property to the AIMCO Operating expenses or make distributions as determined in the Partnership, directly or indirectly, except pursuant to sole discretion of the general partner to affiliates of transactions that are determined by the general partner the general partner. Such loans are payable on demand in good faith to be fair and reasonable. and bear interest at the then prevailing commercial rate of interest, are otherwise commercially reasonable and in the aggregate, do not exceed the amount of excess working capital reserves of your partnership.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money on the credit of and enter into restrictions on borrowings, and the general partner has obligations, recourse and nonrecourse, on behalf of full power and authority to borrow money on behalf of your partnership and to give as security therefore any the AIMCO Operating Partnership. The AIMCO Operating partnership's property. 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.
S-64 764 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 the limited partners or their designated with a statement of the purpose of such demand and at representative to inspect and, at their sole cost and such OP Unitholder's own expense, to obtain a current expense, copy the contents of the books and records of list of the name and last known business, residence or your partnership at the principal place of business of mailing address of the general partner and each other your partnership during normal business hours. OP Unitholder.
Management Control The general partner of your partnership manages and All management powers over the business and affairs of controls your partnership and all aspects of its the AIMCO Operating Partnership are vested in AIMCO-GP, business. The general partner has all the rights and Inc., which is the general partner. No OP Unitholder powers which may be possessed by a general partner has any right to participate in or exercise control or under California law. Subject to the limitations management power over the business and affairs of the contained in your partnership's agreement of limited AIMCO Operating Partnership. The OP Unitholders have partnership, the general partner has the power to the right to vote on certain matters described under perform acts, upon such terms and conditions as the "Comparison of Ownership of Your Units and AIMCO OP general partner deem appropriate and in furtherance of Units -- Voting Rights" below. The general partner may your partnership's business. The limited partners have not be removed by the OP Unitholders with or without no right to participate in the management or control of cause. your partnership, to act on behalf of your partnership, to bind your partnership, or, except as specifically In addition to the powers granted a general partner of authorized in your partnership's agreement of limited a limited partnership under applicable law or that are partnership, to vote upon any matter involving your granted to the general partner under any other partnership. 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 limit the liability of the general partner to the AIMCO Operating Partnership Agreement, the general your partnership or the limited partners for any act partner is not liable to the AIMCO Operating performed in its capacity as general partner. However, Partnership for losses sustained, liabilities incurred your partnership's agreement of limited partnership or benefits not derived as a result of errors in does provide that the general partner of your judgment or mistakes of fact or law of any act or partnership and its affiliates are entitled to omission if the general partner acted in good faith. indemnification from any expense, liability or loss, The AIMCO Operating Partnership Agreement provides for including attorneys' fees incurred in connection with indemnification of AIMCO, or any director or officer of the defense of any action, based on any act or omission AIMCO (in its capacity as the previous general partner by the general partner within the scope of the of the AIMCO Operating Partnership), the general authority conferred by your partnership's agreement of partner, any officer or director of general partner or limited partnership, including all such liabilities the AIMCO Operating Partnership and such other persons under Federal and state securities laws as permitted by as the general partner may designate from and against law, except for acts or omissions constituting fraud, all losses, claims, damages, liabilities, joint or bad faith, willful misconduct or gross negligence. 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 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
S-65 765 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 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 a majority of the outstanding units and elect a partner may not be removed as general partner of the substitute general partner if no general partner AIMCO Operating Partnership by the OP Unitholders with remains. Subject to limitations set forth in your or without cause. Under the AIMCO Operating Partnership partnership's agreement of limited partnership, the Agreement, the general partner may, in its sole general partner may withdraw from your partnership at discretion, prevent a transferee of an OP Unit from any time. A limited partner may not transfer its becoming a substituted limited partner pursuant to the interests without the written consent of the general AIMCO Operating Partnership Agreement. The general partner which may be withheld at the sole discretion of partner may exercise this right of approval to deter, the 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 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 to add in the AIMCO Operating Partnership Agreement, whereby representations, duties or obligations of the general the general partner may, without the consent of the OP partner or surrender a right or power granted to the Unitholders, amend the AIMCO Operating Partnership general partner, effect a ministerial change which does Agreement, amendments to the AIMCO Operating not materially affect the rights of the limited Partnership Agreement require the consent of the partners and as required by law. All other amendments holders of a majority of the outstanding Common OP must be approved by the limited partners owning more Units, excluding AIMCO and certain other limited than 50% of the units and the general partner. exclusions (a "Majority in Interest"). Amendments to Amendments of provisions that require the consent of a the AIMCO Operating Partnership Agreement may be greater percentage than a majority may be amended only proposed by the general partner or by holders of a the percentage required in such provisions. In Majority in Interest. Following such proposal, the addition, any amendment that adversely affects a general partner will submit any proposed amendment to partner or partners must be approved by the affected the OP Unitholders. The general partner will seek the parties. written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fees for its services as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to compensation for additional services nership is responsible for all expenses incurred rendered. 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-66 766 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 personally liable negligence, no OP Unitholder has personal liability for for claims by creditors of your partnership, except as the AIMCO Operating Partnership's debts and provided under California law. 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 The general partner has the responsibility for the Unless otherwise provided for in the relevant safekeeping and use of all funds and assets of your partnership agreement, Delaware law generally requires partnership and must not employ or permit others to a general partner of a Delaware limited partnership to employ such funds or assets in any manner except for adhere to fiduciary duty standards under which it owes the exclusive benefit of your partnership. Your its limited partners the highest duties of good faith, partnership's agreement of limited partnership provides fairness and loyalty and which generally prohibit such that the general partner and its affiliates with whom general partner from taking any action or engaging in they contract on behalf of your partnership must devote any transaction as to which it has a conflict of such of their time to the business of your partnership interest. The AIMCO Operating Partnership Agreement as they may, in their sole discretion, deem necessary expressly authorizes the general partner to enter into, to conduct said business. The general partner and its on behalf of the AIMCO Operating Partnership, a right affiliates may engage for their own account and for the of first opportunity arrangement and other conflict account of others in any business ventures, including avoidance agreements with various affiliates of the the purchase of real estate properties, the AIMCO Operating Partnership and the general partner, on development, operation, management or syndication of such terms as the general partner, in its sole and real estate properties, and your partnership shall have absolute discretion, believes are advisable. The AIMCO no right to participate therein. However, the general Operating Partnership Agreement expressly limits the partner must at all times act in the best interests of liability of the general partner by providing that the your partnership and in no event contrary to the general partner, and its officers and directors will fiduciary relationship that it bears at all times in not be liable or accountable in damages to the AIMCO relation to your partnership and to each of the Operating Partnership, the limited partners or partners with regard to your partnership's business 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-67 767 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, the limited applicable law or in the AIMCO ship Agreement, the OP Unitholders partners owning a majority of the Operating Partnership Agreement, have voting rights only with outstanding units may without the the holders of the Preferred OP respect to certain limited matters concurrence of the general Units will have the same voting such as certain amendments and partners, vote to 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, subject to certain Units" in the accompanying transactions such as the limitations; dissolve and terminate Prospectus. So long as any institution of bankruptcy your partnership; remove the Preferred OP Units are outstand- proceedings, an assignment for the general partner; elect the 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 sale of all or substantially law or by the AIMCO Operating its interest in the AIMCO Operating all of the assets of your Partnership Agree- Part-
S-68 768 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS partnership. ment, the affirmative vote or nership or the admission of a consent of holders of at least 50% successor general partner. The general partner may cause the of the outstanding Preferred OP dissolution of the your partnership Units will be necessary for Under the AIMCO Operating Partner- by retiring unless, the remaining effecting any amendment of any of ship Agreement, the general partner general partner elects to continue the provisions of the Partnership has the power to effect the your partnership within 120 days or Unit Designation of the Preferred acquisition, sale, transfer, if there is no remaining general OP Units that materially and exchange or other disposition of partner, the limited partners adversely affects the rights or any assets of the AIMCO Operating owning more than 50% of the then preferences of the holders of the Partnership (including, but not outstanding units may elect new Preferred OP Units. The creation or limited to, the exercise or grant general partner to continue your issuance of any class or series of of any conversion, option, partnership. 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- 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) are to be distributed the fifth anniversary of the issue determine, of Available Cash (as from time to time but no less often date of the Preferred OP Units, the defined in the AIMCO Operating than quarterly and not later than AIMCO Operating Partnership may Partnership Agreement) generated by ninety days after the end of the adjust the annual distribution rate the AIMCO Operating Partnership fiscal quarter. The distributions on the Preferred OP Units to the during such quarter to the general payable to the partners are not lower of (i) % plus the annual partner, the special limited fixed in amount and depend upon the interest rate then applicable to partner and the holders of Common operating 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. Your partner- issued AIMCO non-convertible accordance with their respective ship has made distributions in the preferred stock which ranks on a interests in the AIMCO Operating past and is projected to make parity with its Class H Cumu- Partnership on such record date. distributions in 1998. Holders of any other Pre-
S-69 769 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 and be Preferred OP Units and the OP Units. The AIMCO Operating Part- substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the such person if: (1) such transfer on any securities exchange. The transferability of the OP Units. is in compliance with applicable Preferred OP Units are subject to Until the expiration of one year Federal and state securities law, restrictions on transfer as set from the date on which an OP (2) a written assignment has been forth in the AIMCO Operating Unitholder acquired OP Units, duly executed by the assignor and Partnership Agreement. subject to certain exceptions, such assignee, (3) the written approval OP Unitholder may not transfer all of the managing general partner Pursuant to the AIMCO Operating or any portion of its OP Units to which may be withheld in the sole Partnership Agreement, until the any transferee without the consent and absolute discretion of the expiration of one year from the of the general partner, which general partner has been granted date on which a holder of Preferred consent may be withheld in its sole and (4) the assignor or the OP Units acquired Preferred OP and absolute discretion. After the assignee pays a transfer fee. Units, subject to certain expiration of one year, such OP exceptions, such holder of Unitholder has the right to There are no redemption rights Preferred OP Units may not transfer transfer all or any portion of its associated with your units. all or any portion of its Pre- OP Units to any person, subject to 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
S-70 770 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-71 771 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 from your partnership but may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $30,621 in 1996, $32,886 in 1997 and $17,036 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's 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'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 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-72 772 YOUR PARTNERSHIP GENERAL La Colina Partners, Ltd. is a California limited partnership which raised net proceeds of approximately $1,411,000 in 1982 through a private offering. The promoter for the private offering of your partnership was Calmark Properties, Inc. & Subs. Insignia acquired your partnership in 1992. AIMCO acquired Insignia in October, 1998. There are currently a total of 37 limited partners of your partnership and a total of 34 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on January 29, 1982 for the purpose of owning and operating a single apartment property located in Fort Collins, Colorado, known as "Scotch Pines East." Your partnership's property consists of 102 apartment units. There are 53 one-bedroom apartments and 1 two-bedroom apartment. The total rentable square footage of your partnership's property is 53,516 square feet. Your partnership's property had an average occupancy rate of approximately 99.02% in 1996 and 99.02% in 1997. The average annual rent per apartment unit is approximately $6,154. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since 1992, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $30,621, $32,886 and $17,036, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is not limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2031 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is not is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-73 773 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,786,929, payable to Lehman, which bears interest at a rate of 7.34%. The mortgage debt is due in December 2004. Your partnership also has a second mortgage note outstanding of $2,786,929, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-74 774 Below is selected financial information for Calmark/Fort Collins, Ltd. taken from the financial statements described above. See "Index to Financial Statements."
CALMARK/ FORT COLLINS, LTD. ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 192,124 $ 61,311 $ 689,070 $ 58,002 $ 41,905 $ 32,707 $ 14,800 Land & Building.............. 2,977,068 2,892,992 2,926,536 2,866,903 2,816,178 2,793,061 2,764,348 Accumulated Depreciation..... (2,689,760) (2,548,381) (2,619,070) (2,477,691) (2,342,385) (2,210,715) (2,083,146) Other Assets................. 104,452 106,972 131,871 120,717 125,176 137,046 160,413 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 583,884 $ 512,894 $ 1,128,407 $ 567,931 $ 640,874 $ 752,099 $ 856,415 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... $ 2,804,056 $ 1,892,499 $ 2,800,000 $ 1,890,607 $ 1,908,194 $ 1,926,141 $ 1,940,681 Other Liabilities............ 25,900 195,515 70,376 260,945 301,104 318,957 306,835 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 2,829,956 2,088,014 2,870,376 2,151,552 2,209,298 2,245,098 2,247,516 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $(2,246,072) $(1,575,120) $(1,741,969) $(1,583,621) $(1,568,424) $(1,492,999) $(1,391,101) =========== =========== =========== =========== =========== =========== ===========
CALMARK/ FORT COLLINS, LTD. ----------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------- ------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- --------- -------- -------- --------- --------- STATEMENTS OF OPERATIONS DATA Rental Revenue.............................. $320,474 $312,886 $ 634,729 $590,562 $558,588 $ 506,904 $ 467,273 Other Income................................ 16,063 10,076 26,773 16,369 19,255 20,836 10,357 -------- -------- --------- -------- -------- --------- --------- Total Revenue...................... 336,537 322,962 661,502 606,931 577,843 527,740 477,630 -------- -------- --------- -------- -------- --------- --------- Operating Expenses.......................... 130,061 98,134 224,165 228,669 256,017 186,995 151,101 General & Administrative.................... 17,036 16,145 26,903 18,381 20,808 54,976 52,422 Depreciation................................ 70,690 70,690 141,379 135,306 131,670 127,569 123,009 Interest Expense............................ 107,305 109,181 216,682 212,921 221,270 226,397 229,230 Property Taxes.............................. 15,548 20,311 28,284 26,851 23,503 33,701 46,235 -------- -------- --------- -------- -------- --------- --------- Total Expenses..................... 340,640 314,461 637,413 622,128 653,268 629,638 601,997 -------- -------- --------- -------- -------- --------- --------- Net Income.................................. $ (4,103) $ 8,501 $ 24,089 $(15,197) $(75,425) $(101,898) $(124,367) ======== ======== ========= ======== ======== ========= ========= Loss on extinguishment of debt.............. (182,437) Net Income.................................. $(158,348)
S-75 775 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized a net loss of $4,103 for the six months ended June 30, 1998, compared to net income of $8,501 for the six months ended June 30, 1997. The decrease in net income of $12,604, or 51.74% was primarily the result of an increase in operating and interest expense offset by an increase in rental revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $336,537 for the six months ended June 30, 1998, compared to $322,962 for the six months ended June 30, 1997, an increase of $13,575, or 4.20%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $130,061 for the six months ended June 30, 1998, compared to $98,134 for the six months ended June 30, 1997, an increase of $31,927 or 32.53%. The increase is primarily due to increased personnel and interior building repair expenses. Management expenses totaled $17,036 for the six months ended June 30, 1998, compared to $16,145 for the six months ended June 30, 1997, an increase of $891. General and Administrative Expenses General and administrative expenses totaled $17,036 for the six months ended June 30, 1998 compared to $16,145 for the six months ended June 30, 1997, an increase of $891. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $107,305 for the six months ended June 30, 1998, compared to $109,181 for the six months ended June 30, 1997, a decrease of $1,876, or 1.72%. The decrease is due to the refinancing of the mortgage which resulted in a lower interest rate. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $158,348 for the year ended December 31, 1997, compared to $15,197 for the year ended December 31, 1996. The decrease in net income of $143,151, or 941.97% was primarily the result of a loss recognized on the refinancing of the mortgage in 1997. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $661,502 for the year ended December 31, 1997, compared to $606,931 for the year ended December 31, 1996, an increase of $54,571, or 8.99%. The increase is due primarily to an increase in rental rates during the year. S-76 776 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $224,165 for the year ended December 31, 1997, compared to $228,669 for the year ended December 31, 1996, a decrease of $4,504 or 1.97%. Management expenses totaled $32,886 for the year ended December 31, 1997, compared to $30,621 for the year ended December 31, 1996, an increase of $2,265, or 7.40%. The increase resulted from an increase in rental revenues, as management fees are calculated based on a percentage of revenues. General and Administrative Expenses General and administrative expenses totaled $26,903 for the year ended December 31, 1997 compared to $18,381 for the year ended December 31, 1996, an increase of $8,522 or 46.36%. The increase is primarily due to professional expenses and asset management fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $216,682 for the year ended December 31, 1997, compared to $212,921 for the year ended December 31, 1996, an increase of $3,761, or 1.77%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $(15,197) for the year ended December 31, 1996, compared to $(75,425) for the year ended December 31, 1995. The increase in net income of $60,228, or 79.85% was primarily the result of an increase in rental revenues and a decrease in operating expenses during 1996. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $606,931 for the year ended December 31, 1996, compared to $577,843 for the year ended December 31, 1995, an increase of $29,088, or 5.03%. The increase is due primarily to increases in the rental rates during 1996. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $228,669 for the year ended December 31, 1996, compared to $256,017 for the year ended December 31, 1995, a decrease of $27,348 or 10.68%. The decrease is primarily due to maintenance work at the property during 1995, which did not occur in 1996. Management expenses totaled $30,621 for the year ended December 31, 1996, compared to $28,854 for the year ended December 31, 1995, an increase of $1,767, or 6.12%. The increase resulted from an increase in rental revenues, as management fees are calculated based on a percentage of revenues. General and Administrative Expenses General and administrative expenses totaled $18,381 for the year ended December 31, 1996 compared to $20,808 for the year ended December 31, 1995, a decrease of $2,427 or 11.66%. This is primarily due to reimbursable general partner fees. S-77 777 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $212,921 for the year ended December 31, 1996, compared to $221,270 for the year ended December 31, 1995, a decrease of $8,349, or 3.77%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $192,124 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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's agreement of limited partnership does not limit the liability of the general partners to your Partners or the limited partners for any act performed in their capacity as general partner. The general partner of your partnership is owned by AIMCO. See "Conflicts of Interest". Your partnership's agreement of limited partnership provides that the general partners of your partnership and their affiliates are entitled to indemnification from any expense, liability or loss, including attorneys' fees incurred in connection with the defense of any action, based on any act or omission by the general partners within the scope of the authority conferred by your partnership's agreement of limited partnership, including all such liabilities under Federal and state securities laws as permitted by law, except for acts or omissions constituting fraud, bad faith, willful misconduct or gross negligence. Such attorneys' fees may be paid as incurred. If such a claim for indemnification (other than for expenses incurred in a successful defense) is asserted against your partnership, your partnership 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 of whether such indemnification by it is against public policy and will be governed by the final adjudication of such issue. Your partnership is provide indemnification to the extent of its assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 0 1995........................................................ 0 1996........................................................ 0 1997........................................................ 0 1998 (through June 30)...................................... 14,705.88
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been S-78 778 limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 and distributions in its company as general partner your partnership as described in the following table:
YEAR MANAGEMENT FEES - ---- --------------- 1994......................................... $4,630 1995......................................... 4,671 1996......................................... 9,475 1997......................................... 8,091 1998 (through June 30).......................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $28,854 1996........................................... 30,621 1997........................................... 32,886 1998 (through June 30)......................... 17,036
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 company paid to the property manager or AIMCO and its affiliates. S-79 779 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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. S-80 780 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1997 CONTENTS
PAGE Financial Statements of Calmark/Fort Collins, Ltd. ---- Condensed Balance Sheet as of June 30, 1998 (Unaudited)..... F-2 Condensed Statement of Operations for the six months ended June 30, 1998 and 1997 (Unaudited)........................ F-3 Condensed Statement of Cash Flows for the six months ended June 30, 1998 and 1997 (Unaudited)........................ F-4 Note A -- Basis of Presentation............................. F-5 Statement of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis as of December 31, 1997 (Unaudited).......................................... F-6 Statement of Revenues and Expenses -- Federal Income Tax Basis for the year ended December 31, 1997 (Unaudited).... F-7 Statement of Changes in Partners' Deficit -- Federal Income Tax Basis for the year ended December 31, 1997 (Unaudited)............................................... F-8 Statement of Cash Flows -- Federal Income Tax Basis for the year ended December 31, 1997 (Unaudited).................. F-9 Notes to Financial Statements -- Federal Income Tax Basis (Unaudited)............................................... F-10 Statement of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis as of December 31, 1996 (Unaudited).......................................... F-14 Statement of Revenues and Expenses -- Federal Income Tax Basis for the year ended December 31, 1996 (Unaudited).... F-15 Statement of Changes in Partners' Deficit -- Federal Income Tax Basis for the year ended December 31, 1996 (Unaudited)............................................... F-16 Statement of Cash Flows -- Federal Income Tax Basis for the year ended December 31, 1996 (Unaudited).................. F-17 Notes to Financial Statements -- Federal Income Tax Basis (Unaudited)............................................... F-18 Statement of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis as of December 31, 1995 (Unaudited).......................................... F-22 Statement of Revenues and Expenses -- Federal Income Tax Basis for the year ended December 31, 1995 (Unaudited).... F-23 Statement of Changes in Partners' Deficit -- Federal Income Tax Basis for the year ended December 31, 1995 (Unaudited)............................................... F-24 Statement of Cash Flows -- Federal Income Tax Basis for the year ended December 31, 1995 (Unaudited).................. F-25 Notes to Financial Statements -- Federal Income Tax Basis (Unaudited)............................................... F-26
F-1 781 CALMARK/FT. COLLINS CONDENSED BALANCE SHEET JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 192,124 Receivables and Deposits.................................... 18,799 Other Assets................................................ 85,653 Investment Property: Land...................................................... $ 190,405 Building and related personal property.................... 2,786,663 ----------- 2,977,068 Less: Accumulated depreciation.............................. (2,689,760) 287,308 ----------- ----------- Total Assets:..................................... $ 583,884 ----------- LIABILITIES AND PARTNERS' CAPITAL Other Accrued Liabilities................................... $ 13,892 Property Taxes Payable...................................... 14,725 Tenant Security Deposits.................................... 14,410 Notes Payable............................................... 2,786,929 Partners' Capital........................................... (2,246,072) ----------- Total Liabilities and Partners' Capital........... $ 583,884 ===========
F-2 782 CALMARK/FT. COLLINS CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $320,474 $312,886 Other Income.............................................. 16,063 10,076 -------- -------- Total Revenues:................................... 336,537 322,962 Expenses: Operating Expenses........................................ 130,061 98,134 General and Administrative Expenses....................... 17,036 16,145 Depreciation Expense...................................... 70,690 70,690 Interest Expense.......................................... 107,305 109,181 Property Tax Expense...................................... 15,548 20,311 -------- -------- Total Expenses:................................... 340,640 314,461 Net Income (Loss)........................................... $ (4,103) $ 8,501 ======== ========
F-3 783 CALMARK/FT. COLLINS CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
JUNE 30, JUNE 30, 1998 1997 --------- --------- Operating Activities: Net Income (loss)......................................... $ (4,103) $ 8,501 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization............................. 75,433 88,920 Changes in accounts: Receivables and deposits and other assets.............. 22,676 8,074 Accounts Payable and accrued expenses.................. (27,349) (51,410) --------- --------- Net cash provided by (used in) operating activities...................................... 66,657 54,085 --------- --------- Investing Activities Property improvements and replacements.................... (50,532) (26,089) --------- --------- Net cash provided by (used in) investing activities...................................... (50,532) (26,089) --------- --------- Financing Activities Payments on mortgage...................................... (13,071) (24,687) Partners' Distributions................................... (500,000) -- --------- --------- Net cash provided by (used in) financing activities...................................... (513,071) (24,687) --------- --------- Net increase (decrease) in cash and cash equivalents...... (496,946) 3,309 Cash and cash equivalents at beginning of year............ 689,070 58,002 --------- --------- Cash and cash equivalents at end of period........ $ 192,124 $ 61,311 ========= =========
F-4 784 CALMARK/FT. COLLINS LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Calmark/Ft. Collins as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with the accounting basis for federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis for federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 785 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED) DECEMBER 31, 1997 ASSETS Cash and cash equivalents................................... $ 689,070 Receivables and deposits.................................... 38,364 Loan costs, net of accumulated amortization of $791......... 65,613 Other assets (Note 3)....................................... 27,894 Apartment property, at cost (Note 4): Land and improvements..................................... $ 190,405 Buildings and related personal property................... 2,736,131 2,926,536 Less accumulated depreciation............................. (2,619,070) 307,466 ----------- ----------- $ 1,128,407 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 6,145 Accrued liabilities....................................... 45,556 Long-term debt (Note 4)................................... 2,800,000 Tenant security deposit liabilities....................... 18,675 ----------- 2,870,376 Partners' deficit: Limited Partners.......................................... $(1,711,754) General Partners.......................................... (30,215) (1,741,969) ----------- ----------- $ 1,128,407 ===========
F-6 786 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF REVENUES AND EXPENSES -- FEDERAL INCOME TAX BASIS (UNAUDITED) YEAR ENDED DECEMBER 31, 1997 Revenues: Rental income............................................. $ 634,729 Other income.............................................. 26,773 --------- 661,502 Expenses: Operating................................................. $224,165 General and administrative................................ 26,903 Interest.................................................. 216,682 Depreciation.............................................. 141,379 Property taxes............................................ 28,284 Loss on extinguishment of debt............................ 182,437 819,850 -------- --------- Excess of expenses over revenues............................ $(158,348) =========
F-7 787 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CHANGES IN PARTNERS' DEFICIT FEDERAL INCOME TAX BASIS (UNAUDITED)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- ----------- ----------- Partners' deficit at December 31, 1996.................. $(28,632) $(1,554,989) $(1,583,621) Excess of expenses over revenues...................... (1,583) (156,765) (158,348) -------- ----------- ----------- Partners' deficit at December 31, 1997.................. $(30,215) $(1,711,754) $(1,741,969) ======== =========== ===========
F-8 788 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CASH FLOWS -- FEDERAL INCOME TAX BASIS (UNAUDITED) YEAR ENDED DECEMBER 31, 1997 Operating activities Excess of expenses over revenues.......................... $ (158,348) Adjustments to reconcile excess of expenses over revenues to net cash provided by operating activities: Loss on extinguishment of debt......................... 182,437 Depreciation........................................... 141,379 Amortization of loan costs and discount................ 33,967 Changes in accounts: Receivables and deposits............................. 12,015 Other assets......................................... (979) Accounts payable..................................... (21,796) Accrued liabilities.................................. 1,527 Tenant security deposit liabilities.................. (1,700) ----------- Net cash provided by operating activities......... 188,502 Investing activities Property improvements and replacements.................... (59,633) Financing activities Payments on long-term debt................................ (178,193) Payoff of long-term debt.................................. (2,029,632) Additional borrowings on long-term debt................... 2,800,000 Loan costs................................................ (66,404) Debt extinguishment costs................................. (3,197) ----------- Net cash provided by financing activities......... 522,574 ----------- Net increase in cash and cash equivalents......... 651,443 Cash and cash equivalents at December 31, 1996............ 37,627 ----------- Cash and cash equivalents at December 31, 1997............ $ 689,070 =========== Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 179,608 ===========
F-9 789 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) DECEMBER 31, 1997 1. ORGANIZATION Description of Partnership Calmark/Fort Collins, Ltd., a California limited partnership (the "Partnership"), was formed in January 1982 to acquire and operate a 102-unit apartment complex in Fort Collins, Colorado. This property was acquired from Calmark Asset Management, Inc. (CAMI), an affiliate of the Corporate General Partner, Calmark/Fort Collins, Inc., a California corporation. The Partnership will terminate on December 31, 2031 unless terminated sooner by the retirement or dissolution of the General Partners or unless the Partners elect to continue the Partnership. The General Partners of the Partnership are Calmark/Fort Collins, Inc., a California corporation (the Corporate General Partner) and Fort Collins Company, Ltd., a California limited partnership (Associate General Partner). In January 1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc., purchased all of the outstanding stock of the Corporate General Partner and assumed the role and obligations of the Managing General Partner of the Partnership. Allocations to Partners In general, income and losses from operations and losses upon sale of the property and/or dissolution of the Partnership are allocated 1% to the General Partners and 99% to the Limited Partners. Income from disposition or partial disposition of the Partnership's property and income upon termination and liquidation of the Partnership will be allocated as follows: a. Ordinary income under Section 751(c) of the Internal Revenue Code will be allocated between the Partners as a class in the same proportion as such deductions were allocated to them. b. To Partners with negative adjusted capital account balances (as defined), after accounting for distributions described below, in proportion to their negative adjusted capital account balances. c. Any remaining income will be allocated so as to produce a 25:75 ratio between the aggregate positive adjusted capital account balances of the General Partners and the aggregate positive adjusted capital account balances of the Limited Partners after accounting for the distributions described below. Cash Distributions Net cash from operations (as defined) is to be distributed not less than quarterly and not later than ninety days after the end of each fiscal quarter of the Partnership in the following order of priority: a. To the General Partners an amount equal to the excess gross rental income (as defined), not to exceed $66,500. b. 1% to the General Partners and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to an 8% per annum cumulative (but not compounded) return on their adjusted investment interest (as defined). c. The remainder is allocated 25% to the General Partners and 75% to the Limited Partners as a class. In general, any proceeds remaining after the sale of the properties and dissolution of the Partnership shall be distributed to the Partners in accordance with their capital accounts after payment of certain items specified in the Partnership Agreement. F-10 790 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Accounting The Partnership's financial statements are prepared using the tax accrual method of accounting as set forth in the Federal income tax code and regulations. This method of accounting differs from generally accepted accounting principles primarily in the timing of recognition of revenue and certain expenses, recognition of certain costs of the Project, methods of depreciation and useful lives of assets, and recognition and amortization of deferred fees. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Apartment Property The apartment property is stated at cost. Depreciation of the apartment property has been provided using the accelerated cost recovery method (1) for real property over 15 years and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 7 years. Replacement Reserve A replacement reserve account was established with the mortgagee, and these funds are to be used to make necessary repairs and replacements of existing equipment and improvements. The Partnership may be required to deposit additional amounts on a monthly basis if the mortgagee determines in its sole discretion that conditions warrant the deposits. At December 31, 1997, the balance in the reserve account was $6,063. Syndication Costs Syndication costs are stated at cost to the Partnership and are not amortizable for Federal income tax purposes, but result in a capital loss upon the dissolution of the Partnership. Leases The Partnership generally leases apartment units for twelve-month terms or less. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits". Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. F-11 791 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) Income Taxes Under provisions of the Internal Revenue Code and applicable state revenue and taxation codes, partnerships are generally not subject to income taxes. For tax purposes, any income or loss realized is that of the individual partners, not the Partnership. Loan Costs Loan costs are being amortized by the straight-line method over the term of the related debt. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. OTHER ASSETS Other assets consist of the following at December 31, 1997: Syndication costs........................................... $20,000 Replacement reserve......................................... 6,063 Other....................................................... 1,831 ------- $27,894 =======
4. LONG-TERM DEBT Long-term debt payable at December 31, 1997 consists of the following: Mortgage note payable to Lehman Brothers Holdings, Inc. secured by a first deed of trust on the property. This note bears interest at 7.34% per annum. Principal and interest payments of $19,272 are payable monthly, with a balloon payment of $2,584,606 due on December 1, 2004..... $2,800,000 ==========
During 1997, the Partnership refinanced its long-term debt. The Partnership recognized a loss on extinguishment of the old debt of $182,437 primarily due to writing off unamortized debt discount and loan costs. In addition, the Partnership incurred $66,404 in costs associated with the new debt. The new debt contains prepayment penalties if repaid prior to maturity. Scheduled principal payments of long-term debt subsequent to December 31, are as follows: 1998.................................................. $ 26,630 1999.................................................. 28,652 2000.................................................. 30,827 2001.................................................. 33,167 2002.................................................. 35,685 Thereafter.............................................. 2,645,039 ---------- $2,800,000 ==========
F-12 792 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) 5. TRANSACTIONS WITH AFFILIATED PARTIES Property management fees of $32,886 (included in operating expenses) and reimbursements for general partner expenses of $8,091 (included in general and administrative expenses) are included in the statement of revenues and expenses -- Federal income tax basis and relate to services provided by affiliates of the Partnership's Managing General Partner. F-13 793 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED) DECEMBER 31, 1996 ASSETS Cash: Unrestricted.............................................. $ 37,627 Restricted -- tenant security deposits.................... 20,375 $ 58,002 ----------- Accounts receivable......................................... 475 Escrow deposits for taxes and insurance..................... 29,529 Loan costs, net of accumulated amortization of $43,513...... 63,798 Other assets (Note 3)....................................... 26,915 Apartment property, at cost (Note 4): Land and improvements..................................... 190,405 Buildings and related personal property................... 2,676,498 ----------- 2,866,903 Less accumulated depreciation............................. (2,477,691) 389,212 ----------- ----------- $ 567,931 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 27,941 Accrued liabilities....................................... 44,029 Long-term debt (Note 4)................................... 2,059,207 Tenant security deposits.................................. 20,375 ----------- 2,151,552 Partners' deficit: Limited Partners.......................................... $(1,554,989) General Partners.......................................... (28,632) (1,583,621) ----------- ----------- $ 567,931 ===========
F-14 794 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF REVENUES AND EXPENSES -- FEDERAL INCOME TAX BASIS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 Revenues: Rental income............................................. $590,562 Other income.............................................. 16,369 -------- 606,931 Expenses: Interest.................................................. $212,921 Depreciation.............................................. 135,306 Amortization of loan costs................................ 10,752 Payroll................................................... 47,528 Utilities................................................. 24,419 Repairs and maintenance................................... 58,528 Property taxes............................................ 26,851 Management fees (Note 5).................................. 30,621 Insurance................................................. 9,052 Other..................................................... 66,150 622,128 -------- -------- Excess of expenses over revenues............................ $(15,197) ========
F-15 795 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CHANGES IN PARTNERS' DEFICIT FEDERAL INCOME TAX BASIS (UNAUDITED)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- ----------- ----------- Partners' deficit at December 31, 1995.................. $(28,480) $(1,539,944) $(1,568,424) Excess of expenses over revenues...................... (152) (15,045) (15,197) -------- ----------- ----------- Partners' deficit at December 31, 1996.................. $(28,632) $(1,554,989) $(1,583,621) ======== =========== ===========
F-16 796 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CASH FLOWS -- FEDERAL INCOME TAX BASIS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 Operating activities Excess of expenses over revenues.......................... $ (15,197) Adjustments to reconcile excess of expenses over revenues to net cash provided by operating activities: Depreciation........................................... 135,306 Amortization of loan costs and discount................ 35,871 Changes in accounts: Restricted cash...................................... (350) Accounts receivable.................................. (90) Escrow deposits for taxes and insurance.............. (3,793) Other assets......................................... (2,410) Accounts payable..................................... 17,501 Accrued liabilities.................................. 15,693 Tenant security deposits............................. 888 --------- Net cash provided by operating activities......... 183,419 Investing activities Property improvements and replacements.................... (50,725) Financing activities Payments on long-term debt................................ (116,947) --------- Net increase in cash.............................. 15,747 Cash at December 31, 1995................................... 21,880 --------- Cash at December 31, 1996................................... $ 37,627 ========= Supplemental disclosure of cash flow information Cash paid for interest expense............................ $ 174,570 =========
F-17 797 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS --FEDERAL INCOME TAX BASIS (UNAUDITED) DECEMBER 31, 1996 1. ORGANIZATION Description of Partnership Calmark/Fort Collins, Ltd., a California limited partnership (the "Partnership"), was formed in January 1982 to acquire and operate a 102-unit apartment complex in Fort Collins, Colorado. This property was acquired from Calmark Asset Management, Inc. (CAMI), an affiliate of the Corporate General Partner, Calmark/Fort Collins, Inc., a California corporation. The Partnership will terminate on December 31, 2031 unless terminated sooner by the retirement or dissolution of the General Partners or unless the Partners elect to continue the Partnership. The General Partners of the Partnership are Calmark/Fort Collins, Inc., a California corporation (the Corporate General Partner) and Fort Collins Company, Ltd., a California limited partnership (Associate General Partner). In January 1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc., purchased all of the outstanding stock of the Corporate General Partner and assumed the role and obligations of the Managing General Partner of the Partnership. Allocations to Partners In general, income and losses from operations and losses upon sale of the property and/or dissolution of the Partnership are allocated 1% to the General Partners and 99% to the Limited Partners. Income from disposition or partial disposition of the Partnership's property and income upon termination and liquidation of the Partnership will be allocated as follows: a. Ordinary income under Section 751(c) of the Internal Revenue Code will be allocated between the Partners as a class in the same proportion as such deductions were allocated to them. b. To Partners with negative adjusted capital account balances (as defined), after accounting for distributions described below, in proportion to their negative adjusted capital account balances. c. Any remaining income will be allocated so as to produce a 25:75 ratio between the aggregate positive adjusted capital account balances of the General Partners and the aggregate positive adjusted capital account balances of the Limited Partners after accounting for the distributions described below. Cash Distributions Net cash from operations (as defined) is to be distributed not less than quarterly and not later than ninety days after the end of each fiscal quarter of the Partnership in the following order of priority: a. To the General Partners an amount equal to the excess gross rental income (as defined), not to exceed $66,500. b. 1% to the General Partners and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to an 8% per annum cumulative (but not compounded) return on their adjusted investment interest (as defined). c. The remainder is allocated 25% to the General Partners and 75% to the Limited Partners as a class. In general, any proceeds remaining after the sale of the properties and dissolution of the Partnership shall be distributed to the Partners in accordance with their capital accounts after payment of certain items specified in the Partnership Agreement. F-18 798 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Accounting The Partnership's financial statements are prepared using the tax accrual method of accounting as set forth in the Federal income tax code and regulations. This method of accounting differs from generally accepted accounting principles primarily in the timing of recognition of revenue and certain expenses, recognition of certain costs of the Project, methods of depreciation and useful lives of assets, and recognition and amortization of deferred fees. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Apartment Property The apartment property is stated at cost. Depreciation of the apartment property has been provided using the accelerated cost recovery method (1) for real property over 15 years and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 7 years. Replacement Reserve A replacement reserve account was established with the mortgagee, and these funds are to be used to make necessary repairs and replacements of existing equipment and improvements. The Partnership may be required to deposit additional amounts on a monthly basis if the mortgagee determines in its sole discretion that conditions warrant the deposits. At December 31, 1996, the balance in the reserve account was $5,739. Syndication Costs Syndication costs are stated at cost to the Partnership and are not amortizable for Federal income tax purposes, but result in a capital loss upon the dissolution of the Partnership. Leases The Partnership generally leases apartment units for twelve-month terms or less. Cash The Partnership considers only unrestricted cash to be cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash The Partnership requires security deposits from all lessees for the duration of the lease. Deposits are refunded when the tenant vacates the apartment if there has been no damage. F-19 799 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) Income Taxes Under provisions of the Internal Revenue Code and applicable state revenue and taxation codes, partnerships are generally not subject to income taxes. For tax purposes, any income or loss realized is that of the individual partners, not the Partnership. Loan Costs Loan costs are being amortized by the straight-line method over the term of the related debt. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. OTHER ASSETS Other assets consist of the following at December 31, 1996: Syndication costs........................................... $20,000 Replacement reserve......................................... 5,739 Other....................................................... 1,176 ------- $26,915 =======
4. LONG-TERM DEBT Long-term debt payable at December 31, 1996 consists of the following: Mortgage note payable to Metmor Financial, Inc. secured by a first deed of trust on the property. This note bears interest at 8.25% per annum. Principal and interest payments of $18,064 are payable monthly, with a balloon payment of $1,663,990 due on January 1, 2003.............. $2,039,225 Promissory note payable to E.E. Mitchell and Co. This note bears interest at 8.8% per annum. Interest and principal payments based on cash flow (as defined in the note) are made monthly. The unpaid principal and interest is due on December 1, 1997.......................................... 168,600 ---------- 2,207,825 Less unamortized loan discount fee.......................... (148,618) ---------- $2,059,207 ==========
The Partnership exercised an interest rate buy-down option for the refinanced mortgage note payable. This loan discount fee, amortized on a straight-line basis over the life of the loan, is reflected as a reduction of the mortgage note payable and increases the effective rate of the debt to 10.25%. The mortgage note payable is secured by pledge of the apartment property and by pledge of revenues from the apartment property. F-20 800 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) Scheduled principal payments of long-term debt subsequent to December 31, are as follows: 1997.................................................. $ 223,401 1998.................................................. 55,115 1999.................................................. 59,837 2000.................................................. 64,996 2001.................................................. 70,534 Thereafter............................................ 1,733,942 ---------- $2,207,825 ==========
5. TRANSACTIONS WITH AFFILIATED PARTIES Property management fees of $30,621 and reimbursements for general partner expenses of $6,707 (included in other expenses) are included in the statement of revenues and expenses -- Federal income tax basis and relate to services provided by affiliates of the Partnership's Managing General Partner. At December 31, 1996, the Partnership owed the General Partner $2,768 for general partner expenses. F-21 801 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED) DECEMBER 31, 1995 ASSETS Cash: Unrestricted.............................................. $ 21,880 Restricted -- tenant security deposits.................... 20,025 $ 41,905 ----------- Accounts receivable......................................... 385 Escrow deposits for taxes and insurance..................... 25,736 Loan costs, net of accumulated amortization of $32,761...... 74,550 Other assets (Note 3)....................................... 24,505 Apartment property, at cost (Note 4): Land and improvements..................................... 190,405 Buildings and related personal property................... 2,625,773 ----------- 2,816,178 Less accumulated depreciation............................. (2,342,385) 473,793 ----------- ----------- $ 640,874 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 10,440 Accrued liabilities....................................... 28,336 Long-term debt (Note 4)................................... 2,151,035 Tenant security deposits.................................. 19,487 ----------- 2,209,298 Partners' deficit: Limited Partners.......................................... $(1,539,944) General Partners.......................................... (28,480) (1,568,424) ----------- ----------- $ 640,874 ===========
F-22 802 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF REVENUES AND EXPENSES -- FEDERAL INCOME TAX BASIS (UNAUDITED) YEAR ENDED DECEMBER 31, 1995 Revenues: Rental income............................................. $558,588 Other income.............................................. 19,255 -------- 577,843 Expenses: Interest.................................................. $221,270 Depreciation.............................................. 131,670 Amortization of loan costs................................ 10,752 Payroll................................................... 49,462 Utilities................................................. 24,446 Repairs and maintenance................................... 90,192 Property taxes............................................ 23,503 Management fees (Note 5).................................. 28,854 Insurance................................................. 9,827 Other..................................................... 63,292 653,268 -------- -------- Excess of expenses over revenues............................ $(75,425) ========
F-23 803 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- ----------- ----------- Partners' deficit at December 31, 1994.................. $(27,726) $(1,465,273) $(1,492,999) Excess of expenses over revenues...................... (754) (74,671) (75,425) -------- ----------- ----------- Partners' deficit at December 31, 1995.................. $(28,480) $(1,539,944) $(1,568,424) ======== =========== ===========
F-24 804 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CASH FLOWS -- FEDERAL INCOME TAX BASIS (UNAUDITED) YEAR ENDED DECEMBER 31, 1995 Operating activities Excess of expenses over revenues.......................... $(75,425) Adjustments to reconcile excess of expenses over revenues to net cash provided by operating activities: Depreciation........................................... 131,670 Amortization of loan costs and discount................ 35,871 Changes in accounts: Restricted cash...................................... (2,650) Accounts receivable.................................. (141) Escrow deposits for taxes and insurance.............. 1,258 Accounts payable..................................... 4,901 Accrued liabilities.................................. 10,899 Tenant security deposits............................. 61 -------- Net cash provided by operating activities......... 106,444 Investing activities Property improvements and replacements.................... (23,117) Financing activities Payments on long-term debt................................ (76,779) -------- Net increase in cash.............................. 6,548 Cash at December 31, 1994................................... 15,332 -------- Cash at December 31, 1995................................... $ 21,880 ======== Supplemental disclosure of cash flow information Cash paid for interest expense............................ $196,300 ========
F-25 805 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) DECEMBER 31, 1995 1. ORGANIZATION Description of Partnership Calmark/Fort Collins, Ltd., a California limited partnership (the "Partnership"), was formed in January 1982 to acquire and operate a 102-unit apartment complex in Fort Collins, Colorado. This property was acquired from Calmark Asset Management, Inc. (CAMI), an affiliate of the Corporate General Partner, Calmark/Fort Collins, Inc., a California corporation. The Partnership will terminate on December 31, 2031 unless terminated sooner by the retirement or dissolution of the General Partners or unless the Partners elect to continue the Partnership. The General Partners of the Partnership are Calmark/Fort Collins, Inc., a California corporation (the Corporate General Partner) and Fort Collins Company, Ltd., a California limited partnership (Associate General Partner). In January 1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc., purchased all of the outstanding stock of the Corporate General Partner and assumed the role and obligations of the Managing General Partner of the Partnership. Allocations to Partners In general, income and losses from operations and losses upon sale of the property and/or dissolution of the Partnership are allocated 1% to the General Partners and 99% to the Limited Partners. Income from disposition or partial disposition of the Partnership's property and income upon termination and liquidation of the Partnership will be allocated as follows: a. Ordinary income under Section 751(c) of the Internal Revenue Code will be allocated between the Partners as a class in the same proportion as such deductions were allocated to them. b. To Partners with negative adjusted capital account balances (as defined), after accounting for distributions described below, in proportion to their negative adjusted capital account balances. c. Any remaining income will be allocated so as to produce a 25:75 ratio between the aggregate positive adjusted capital account balances of the General Partners and the aggregate positive adjusted capital account balances of the Limited Partners after accounting for the distributions described below. Cash Distributions Net cash from operations (as defined) is to be distributed not less than quarterly and not later than ninety days after the end of each fiscal quarter of the Partnership in the following order of priority: a. To the General Partners an amount equal to the excess gross rental income (as defined), not to exceed $66,500. b. 1% to the General Partners and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to an 8% per annum cumulative (but not compounded) return on their adjusted investment interest (as defined). c. The remainder is allocated 25% to the General Partners and 75% to the Limited Partners as a class. In general, any proceeds remaining after the sale of the properties and dissolution of the Partnership shall be distributed to the Partners in accordance with their capital accounts after payment of certain items specified in the Partnership Agreement. F-26 806 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Accounting The Partnership's financial statements are prepared using the tax accrual method of accounting as set forth in the Federal income tax code and regulations. This method of accounting differs from generally accepted accounting principles primarily in the timing of recognition of revenue and certain expenses, recognition of certain costs of the Project, methods of depreciation and useful lives of assets, and recognition and amortization of deferred fees. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Apartment Property The apartment property is stated at cost. Depreciation of the apartment property has been provided using the accelerated cost recovery method (1) for real property over 15 years and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 7 years. Replacement Reserve A replacement reserve account was established with the mortgagee, and these funds are to be used to make necessary repairs and replacements of existing equipment and improvements. The Partnership may be required to deposit additional amounts on a monthly basis if the mortgagee determines in its sole discretion that conditions warrant the deposits. At December 31, 1995, the balance in the reserve account was $4,505. Syndication Costs Syndication costs are stated at cost to the Partnership and are not amortizable for Federal income tax purposes, but result in a capital loss upon the dissolution of the Partnership. Leases The Partnership generally leases apartment units for twelve-month terms or less. Cash The Partnership considers only unrestricted cash to be cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash The Partnership requires security deposits from all lessees for the duration of the lease. Deposits are refunded when the tenant vacates the apartment if there has been no damage. F-27 807 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) Income Taxes Under provisions of the Internal Revenue Code and applicable state revenue and taxation codes, partnerships are generally not subject to income taxes. For tax purposes, any income or loss realized is that of the individual partners, not the Partnership. Loan Costs Loan costs are being amortized by the straight-line method over the term of the related debt. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. OTHER ASSETS Other assets consist of the following at December 31, 1995: Syndication costs........................................... $20,000 Replacement reserve......................................... 4,505 ------- $24,505 =======
See Accountant's Compilation Report 4. LONG-TERM DEBT Long-term debt payable at December 31, 1995 consists of the following: Mortgage note payable to Metmor Financial, Inc. secured by a first deed of trust on the property. This note bears interest at 8.25% per annum. Principal and interest payments of $18,064 are payable monthly, with a balloon payment of $1,663,990 due on January 1, 2003.............. $2,081,931 Promissory note payable to E.E. Mitchell and Co. This note bears interest at 8.8% per annum. Interest and principal payments based on cash flow (as defined in the note) are made monthly. The unpaid principal and interest is due on December 1, 1997.......................................... 242,841 ---------- 2,324,772 Less unamortized loan discount fee.......................... (173,737) ---------- $2,151,035 ==========
The Partnership exercised an interest rate buy-down option for the refinanced mortgage note payable. This loan discount fee, amortized on a straight-line basis over the life of the loan, is reflected as a reduction of the mortgage note payable and increases the effective rate of the debt to 10.25%. The mortgage note payable is secured by pledge of the apartment property and by pledge of revenues from the apartment property. F-28 808 CALMARK/FORT COLLINS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) Scheduled principal payments of long-term debt subsequent to December 31, are as follows: 1996.................................................... $ 46,758 1997.................................................... 293,605 1998.................................................... 55,115 1999.................................................... 59,837 2000.................................................... 64,966 Thereafter.............................................. 1,804,491 ---------- $2,324,772 ==========
See Accountants' Compilation Report. 5. TRANSACTIONS WITH AFFILIATED PARTIES Property management fees of $28,854 and reimbursements for general partner expenses of $4,671 (included in other expenses) are included in the statement of revenues and expenses -- Federal income tax basis and relate to services provided by affiliates of the Partnership's Managing General Partner. F-29 809 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 810 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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-2 811 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 September , 1998 A-3 812 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CALMARK HERITAGE PARK II 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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 apartment properties to holding an interest in our large portfolio of properties. - 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 813 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-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 Calmark Heritage Park II 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-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-36 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-37 Fractional OP Units.......................... S-38 Future Plans of the AIMCO Operating Partnership................................ S-38 Voting by the AIMCO Operating Partnership.... S-38 Dissenters' Rights........................... S-39 Conditions of the Offer...................... S-39 Effects of the Offer......................... S-41 Certain Legal Matters........................ S-41 Fees and Expenses............................ S-42 Accounting Treatment......................... S-42
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-43 Allocation................................... S-44 Liquidation Preference....................... S-44 Redemption................................... S-45 Voting Rights................................ S-45 Restrictions on Transfer..................... S-45 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-48 CERTAIN FEDERAL INCOME TAX MATTERS............. S-51 Tax Consequences of Exchanging Units Solely for OP Units............................... S-51 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-51 Tax Consequences of Exchanging Units Solely for Cash................................... S-52 Adjusted Tax Basis........................... S-52 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-53 Passive Activity Losses...................... S-53 Foreign Offerees............................. S-54 Certain Tax Consequences to Non-Tendering and Partially-Tendering Unitholders............ S-54 VALUATION OF UNITS............................. S-55 FAIRNESS OF THE OFFER.......................... S-56 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-56 Fairness to Unitholders who Tender their Units...................................... S-57 Fairness to Unitholders who do not Tender their Units................................ S-58 Comparison of Consideration to Alternative Consideration.............................. S-58 Allocation of Consideration.................. S-59 STANGER ANALYSIS............................... S-59 Experience of Stanger........................ S-60 Summary of Materials Considered.............. S-60 Summary of Reviews........................... S-60 Conclusions.................................. S-61 Assumptions, Limitations and Qualifications............................. S-61 Compensation and Material Relationships...... S-62 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-63 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-68 CONFLICTS OF INTEREST.......................... S-72 Conflicts of Interest with Respect to the Offer...................................... S-72 Conflicts of Interest that Currently Exist for Your Partnership....................... S-72 Competition Among Properties................. S-72 Features Discouraging Potential Takeovers.... S-72 Future Exchange Offers....................... S-72
i 814
PAGE ---- YOUR PARTNERSHIP............................... S-73 General...................................... S-73 Your Partnership and its Property............ S-73 Property Management.......................... S-73 Investment Objectives and Policies; Sale or Financing of Investments................... S-73 Capital Replacement.......................... S-74 Borrowing Policies........................... S-74 Competition.................................. S-74 Legal Proceedings............................ S-74 Selected Financial Information............... S-74 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-76 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78
PAGE ---- Distributions and Transfers of Units......... S-78 Beneficial Ownership of Interests in Your Partnership................................ S-79 Compensation Paid to the General Partner and its Affiliates............................. S-79 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-80 LEGAL MATTERS.................................. S-80 EXPERTS........................................ S-80 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 815 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 Calmark Heritage Park II 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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-1 816 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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-2 817 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 made a distribution. 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). 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 small number of apartment 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-3 818 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer 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. In addition, 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-4 819 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 100% of 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? 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: 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-5 820 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-6 821 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. 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. 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 5 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. 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 S-7 822 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. 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. Although your partnership did not make any distributions in 1998, it might make distributions in the future. 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 Code. The particular tax consequences to you of the exchange 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-8 823 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 small number of apartment 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the 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-9 824 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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-10 825 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, 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-11 826 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent the limited partners holding of at least a majority of the units of your partnership. In the absence of such consent, your only 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-12 827 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 required funding from its partners. Continuation of its operations is dependent on additional funding from partners or from other sources. 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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). Your partnership has not paid any distributions on your units since the inception of your partnership. S-13 828 - 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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-14 829 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 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-15 830 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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: Required 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-16 831 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 832 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 is not subject to such limitations. 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 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 generated in that capacity from your partnership. The property manager received management fees of $333,000 in 1996, $269,000 in 1997 and $135,829 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. S-18 833 YOUR PARTNERSHIP Your Partnership and its Property. Calmark Heritage Park II Ltd. is a California limited partnership which was formed on November 10, 1986 for the purpose of owning and operating a small number of apartment properties located in Escondido, California, Livermore, California, Anaheim, California and Chino, California, known as "Heritage Park Escondido Apartments," "Heritage Park Livermore Apartments," "Heritage Village Anaheim Apartments" and "Villa Serena Apartments". In 1986, it completed a private placement of units that raised net proceeds of approximately $18,650,000. Heritage Park Escondido Apartments consists of 196 apartment units, Heritage Park Livermore Apartments consists of 167 apartment units, Heritage Village Anaheim Apartments consists of 196 apartment units and Villa Serena Apartments consists of 186 apartment units. Your partnership has no employees. Property Management. Since 1992, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on March 9, 2011, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage notes outstanding on Heritage Park Escondido Apartments of $6,150,000, Heritage Park Livermore Apartments of $6,870,000 and Heritage Village Anaheim Apartments of $7,685,000 payable to Wells Fargo and First Trust of NY, which bear interest at variable rates and are due from 2007 to 2022. There is also a mortgage note on Villa Serena Apartments, the balance of which is $4,980,103, as of June 30, 1998. The note is payable to GMAC, bears interest at 6.25% and is due November 2007. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-19 834 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 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-20 835
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 SIX MONTHS FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ----------------- ----------------- 1998 1997 1997 1996 ------- ------- ------- ------- (IN THOUSANDS) Net income........................... $38,524 $11,464 $32,697 $15,673 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 Amortization of goodwill............. 4,727 474 948 500 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) -- ------- ------- ------- ------- Funds from operations................ $83,657 $28,441 $81,155 $35,185 ======= ======= ======= ======= FOR THE FOR THE YEAR ENDED DECEMBER 31, UARY 10, ------- ----------- 1995 1994 ------- ----------- Net income........................... $14,988 $ 7,702 Gain on disposition of property...... -- -- Extraordinary item................... -- -- Real estate depreciation, net of minority interests................. 15,038 4,727 Amortization of goodwill............. 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........... -- -- Amortization of management contracts........................ -- -- Deferred taxes..................... -- -- Equity in earnings of other partnerships: Real estate depreciation........... -- -- Preferred stock dividends.......... (5,169) (3,114) ------- ------- Funds from operations................ $25,285 $ 9,391 ======= =======
S-21 836 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 837
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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-23 838 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 839 SUMMARY FINANCIAL INFORMATION OF CALMARK HERITAGE PARK II LTD. The summary financial information of Calmark Heritage Park II Ltd. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Calmark Heritage Park II 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 of Your Partnership" included herein. See "Index to Financial Statements." CALMARK HERITAGE PARK II LTD.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... $ 2,560,636 $ 2,561,658 $ 5,160,000 $ 6,142,000 $ 6,272,954 $ 6,078,744 $ 6,067,789 Net Income/(Loss)............ (145,729) 92,623 498,000 (761,000) (928,632) (2,246,219) (691,506) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... 20,230,757 21,027,568 20,595,000 25,834,000 28,379,003 29,324,297 32,114,434 Total Assets................. $23,288,334 $25,994,789 $25,266,000 $29,618,000 $31,797,841 $32,646,694 $35,468,984 Mortgage Notes Payable, including Accrued Interest................... 29,798,625 31,673,640 31,540,000 36,865,000 39,312,783 39,142,350 39,766,148 Partners' Capital/(Deficit).......... $(6,711,900) $(5,974,377) $(6,565,000) $(7,599,000) $(7,842,344) $(6,913,712) $(4,667,493)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $0
S-25 840 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. 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 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 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. S-26 841 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 Code. 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 therefore 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 apartment properties. In contrast, the AIMCO Operating Partnership is in the business of S-27 842 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. The partnership has never made a distribution to its limited partners. 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 distribution 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 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-28 843 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 prohibits any transfer of units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the offer. MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own limited partnership interests in your partnership. S-29 844 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 has required funding from its partners. Continuation of its operations is dependent on additional funding from partners or from other sources. Your S-30 845 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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. Your Partnership has not paid any distributions on your units since the inception of your partnership. 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 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. Your Partnership has not paid any distributions on your units since the inception of your partnership. - 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-31 846 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-32 847 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-33 848 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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-34 849 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. 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 S-35 850 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." 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. 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. S-36 851 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, (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 considerations 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 9:00 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 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, Denver, Colorado 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and S-37 852 (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage 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 S-38 853 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 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 or 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 S-39 854 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 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 S-40 855 (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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-41 856 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. 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. 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 S-42 857 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 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 S-43 858 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 payment. 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 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. S-44 859 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-45 860 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-46 861 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-47 862 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-48 863 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-49 864 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-50 865 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-51 866 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-52 867 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-53 868 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 UNITHOLDERS 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 unitholders who do not tender all of their units (a "Remaining Unitholders") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Unitholder will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Unitholders in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Unitholder'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 Unitholders 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 Unitholders 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 unitholder 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 unitholders. In the case of a Remaining Unitholder 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 unitholder's taxable income for the year of Termination. S-54 869 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-55 870 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-56 871 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 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, a third party expert, 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 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. The partnership has never made a distribution to its limited partners. This is equivalent to 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 distribution 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-57 872 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................................ Not available Estimated Liquidation Proceeds............................ $
S-58 873 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 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-1 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 "-- Fairness Opinion -- 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-59 874 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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 September 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 S-60 875 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 property was 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 S-61 876 value of the partnership's property 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 property 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 property 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'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-1. 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 $9,000 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-62 877 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing "Heritage Park Escondido Apartments," Partnership owns interests (either directly or through "Heritage Park Livermore Apartments," "Heritage Village subsidiaries) in numerous multifamily apartment Anaheim Apartments" and "Villa Serena Apartments" 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 March 9, Agreement") or as provided by law. See "Description of 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, directly The purpose of the AIMCO Operating Partnership is to or indirectly, construct, rent-up, develop, own, hold, conduct any business that may be lawfully conducted by maintain, improve, finance, refinance, operate for the a limited partnership organized pursuant to the production of income, hold for investment and dispose Delaware Revised Uniform Limited Partnership Act (as of property situated in the United States. 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 act necessary or appropriate in connection manner that permits AIMCO to be qualified as a REIT, therewith and reasonably related thereto, including unless AIMCO ceases to qualify as a REIT. The AIMCO borrowing money, creating liens and investing funds in Operating Partnership is authorized to perform any and financial instruments. 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-63 878 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 400 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 The general partner of your partnership may contract The AIMCO Operating Partnership may lend or contribute with affiliated persons for the management or funds or other assets to its subsidiaries or other supervision of any or all of the assets of your persons in which it has an equity investment, and such partnership or for the performance of any other persons may borrow funds from the AIMCO Operating services which the general partners deem necessary or Partnership, on terms and conditions established in the advisable for the operation of your partnership. Any sole and absolute discretion of the general partner. To and all compensation paid to such affiliated persons in the extent consistent with the business purpose of the connection with services performed for your partnership AIMCO Operating Partnership and the permitted must be reasonable and fair to your partnership and the activities of the general partner, the AIMCO Operating partners. Such contracts between your partnership and Partnership may transfer assets to joint ventures, the general partner or any affiliates must provide that limited liability companies, partnerships, it may be cancelled at any time by your partnership corporations, business trusts or other business without penalty upon 60 days prior written notice. In entities in which it is or thereby becomes a addition, the general partner and its affiliates may participant upon such terms and subject to such lend money to your partnership which will be repaid in conditions consistent with the AIMCO Operating Part- accordance with the terms of the advances out of the nership Agreement and applicable law as the general gross receipts of your partnership with interest at the partner, in its sole and absolute discretion, believes then prevailing commercial rate or at the highest rate to be advisable. Except as expressly permitted by the permitted by the applicable usury law, whichever is AIMCO Operating Partnership Agreement, neither the less. Your partnership may lend money to the general general partner nor any of its affiliates may sell, partner and its affiliates with the approval of the transfer or convey any property to the AIMCO Operating limited partners holding a majority of outstanding Partnership, directly or indirectly, except pursuant to units. transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership are authorized The AIMCO Operating Partnership Agreement contains no to borrow money on the credit of and enter into restrictions on borrowings, and the general partner has obligations, recourse and nonrecourse, on behalf of full power and authority to borrow money on behalf of your partnership and to give as security therefor any the AIMCO Operating Partnership. The AIMCO Operating of your partnership's property. 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.
S-64 879 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 the limited partners or their designated with a statement of the purpose of such demand and at representative to inspect and, at their sole cost and such OP Unitholder's own expense, to obtain a current expense, copy the list of the full name and last known list of the name and last known business, residence or business or residence address of each partner set forth mailing address of the general partner and each other in alphabetical order at the principal place of OP Unitholder. business of your partnership during normal business hours.
Management Control The general partner of your partnership manages and All management powers over the business and affairs of controls your partnership and all aspects of its the AIMCO Operating Partnership are vested in AIMCO-GP, business. The general partner has all the rights and Inc., which is the general partner. No OP Unitholder powers which may be possessed by a general partner has any right to participate in or exercise control or under California law. Except as provided in your management power over the business and affairs of the partnership's agreement of limited partnership, the AIMCO Operating Partnership. The OP Unitholders have general partner has the exclusive right and power to the right to vote on certain matters described under exercise the powers possess by the general partners. "Comparison of Ownership of Your Units and AIMCO OP Subject to the limitations contained in your Units -- Voting Rights" below. The general partner may partnership's agreement of limited partnership, the not be removed by the OP Unitholders with or without general partner has the power to perform acts, upon cause. such terms and conditions as the general partner deems appropriate and in furtherance of your partnership's In addition to the powers granted a general partner of business. The limited partners have no right to a limited partnership under applicable law or that are participate in the management or control of your granted to the general partner under any other partnership, to act on behalf of your partnership, to provision of the AIMCO Operating Partnership Agreement, bind your partnership, or, except as specifically the general partner, subject to the other provisions of authorized in your partnership's agreement of limited the AIMCO Operating Partnership Agreement, has full partnership, to vote upon any matter involving your power and authority to do all things deemed necessary partnership. 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 limit the liability of the general partner to the AIMCO Operating Partnership Agreement, the general your partnership or the limited partners for any act partner is not liable to the AIMCO Operating performed in its capacity as general partner. However, Partnership for losses sustained, liabilities incurred your partnership's agreement of limited partnership or benefits not derived as a result of errors in does provide that your partnership will indemnify the judgment or mistakes of fact or law of any act or general partner of your partnership and its affiliates omission if the general partner acted in good faith. from any expense, liability or loss, including The AIMCO Operating Partnership Agreement provides for attorney's fees incurred in connection with the defense indemnification of AIMCO, or any director or officer of of any action or omission by the general partner AIMCO (in its capacity as the previous general partner performed within the scope of the authority conferred of the AIMCO Operating Partnership), the general by your partnership's agreement of limited partnership, partner, any officer or director of general partner or except for acts or omissions constituting fraud, bad the AIMCO Operating Partnership and such other persons faith, willful misconduct or gross negligence. as the general partner may designate from and against Notwithstanding the foregoing, your partnership will all losses, claims, damages, liabilities, joint or not indemnify any person for any liabilities under several, expenses (including legal fees), fines, Federal and state securities law unless (i) there has settlements and other amounts incurred in connection been a successful adjudication on the merits of each with any actions relating to the operations of the count involving alleged securities law violations, (ii) AIMCO Operating Partnership, as set forth in the AIMCO such claims have been dismissed with prejudice on the Operating Partnership Agreement. The Delaware Limited merits by a court of competent jurisdiction or (iii) a Partnership Act provides that subject to the standards court of competent jurisdiction approves a settlement and restrictions, if any, set forth in its partnership of the claims. If a claim of indemnification (other agreement, a limited partnership may, and shall have
S-65 880 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP than for expenses incurred in a successful defense) is the power to, indemnify and hold harmless any partner asserted against your partnership, your partnership or other person from and against any and all claims and will notify the court of the position of the SEC with demands whatsoever. It is the position of the respect to the issue of indemnification for securities Securities and Exchange Commission that indemnification law violations. Such indemnification paid by your of directors and officers for liabilities arising under partnership will be to the extent of your partnership the Securities Act is against public policy and is assets 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 and elect a partner may not be removed as general partner of the substitute general partner if no general partner AIMCO Operating Partnership by the OP Unitholders with remains. Subject to limitations set forth in your or without cause. Under the AIMCO Operating Partnership partnership's agreement of limited partnership and the Agreement, the general partner may, in its sole existence of a remaining general partner, a general discretion, prevent a transferee of an OP Unit from partner may withdraw from your partnership at any time. becoming a substituted limited partner pursuant to the An additional general partner may be admitted with the AIMCO Operating Partnership Agreement. The general consent of the managing general partner and the limited partner may exercise this right of approval to deter, partners owning a majority of the outstanding units. A delay or hamper attempts by persons to acquire a limited partner may not transfer its interests without controlling interest in the AIMCO Operating Partner- the written consent of the managing general partner ship. Additionally, the AIMCO Operating Partnership which may be withheld at the sole discretion of the Agreement contains restrictions on the ability of OP managing 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 to add in the AIMCO Operating Partnership Agreement, whereby representations, duties or obligations of the general the general partner may, without the consent of the OP partner or surrender a right or power granted to the Unitholders, amend the AIMCO Operating Partnership general partner, correct any error or ambiguity and as Agreement, amendments to the AIMCO Operating required by law; provided however that such amendments Partnership Agreement require the consent of the must be for the benefit of and not adverse to the holders of a majority of the outstanding Common OP interests of the limited partners, do not effect the Units, excluding AIMCO and certain other limited distributions to limited partners except for those exclusions (a "Majority in Interest"). Amendments to amendments required by law and do not affect the the AIMCO Operating Partnership Agreement may be limited liability of the limited partners. All other proposed by the general partner or by holders of a amendments must be approved by the limited partners Majority in Interest. Following such proposal, the owning more than 50% of the units and the general general partner will submit any proposed amendment to partners. Amendments of provisions that require the the OP Unitholders. The general partner will seek the consent of a greater percentage than a majority may be written consent of the OP Unitholders on the proposed amended only the percentage required in such amendment or will call a meeting to vote thereon. See provisions. In addition, any amendment that adversely "Description of OP Units -- Amendment of the AIMCO affects a partner or partners must be approved by the Operating Partnership Agreement" in the accompanying affected parties. Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fees for its services as general partner capacity as general partner of the AIMCO Operating but may receive other fees in connection with Partnership. In addition, the AIMCO Operating Part- additional services. Moreover, the general partner or nership is responsible for all expenses incurred certain affiliates may be entitled to compensation for relating to the AIMCO Operating Partnership's ownership additional services rendered. 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-66 881 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 personally liable negligence, no OP Unitholder has personal liability for for claims by creditors of your partnership, except as the AIMCO Operating Partnership's debts and provided under California law. 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 The general partner has the responsibility for the Unless otherwise provided for in the relevant safekeeping and use of all funds and assets of your partnership agreement, Delaware law generally requires partnership and must not employ or permit others to a general partner of a Delaware limited partnership to employ such funds or assets in any manner except for adhere to fiduciary duty standards under which it owes the exclusive benefit of your partnership. Your its limited partners the highest duties of good faith, partnership's agreement of limited partnership provides fairness and loyalty and which generally prohibit such that the general partner and its affiliates with whom general partner from taking any action or engaging in it contracts on behalf of your partnership must devote any transaction as to which it has a conflict of such of their time to the business of your partnership interest. The AIMCO Operating Partnership Agreement as they may, in their sole discretion, deem necessary expressly authorizes the general partner to enter into, to conduct the partnership's business. The general on behalf of the AIMCO Operating Partnership, a right partner and its affiliates may engage for its own of first opportunity arrangement and other conflict account and for the account of others in any business avoidance agreements with various affiliates of the ventures, including the purchase of real estate AIMCO Operating Partnership and the general partner, on properties, the development, operation, management or such terms as the general partner, in its sole and syndication of real estate properties, and your absolute discretion, believes are advisable. The AIMCO partnership shall have no right to participate therein. Operating Partnership Agreement expressly limits the None of the partners is limited in any manner to the liability of the general partner by providing that the performance of services for the properties owned by general partner, and its officers and directors will your partnership alone. However, the general partner not be liable or accountable in damages to the AIMCO must at all times act in the best interests of your Operating Partnership, the limited partners or partnership and in no event contrary to the fiduciary assignees for errors in judgment or mistakes of fact or relationship that it bears at all times in relation to law or of any act or omission if the general partner or your partnership and to each of the partners with such director or officer acted in good faith. See regard to your partnership's business. "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-67 882 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, the limited applicable law or in the AIMCO ship Agreement, the OP Unitholders partners owning a majority of the Operating Partnership Agreement, have voting rights only with outstanding units may without the the holders of the Preferred OP respect to certain limited matters concurrence of the general Units will have the same voting such as certain amendments and partners, vote to 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, subject to certain Units" in the accompanying transactions such as the limitations; dissolve and terminate Prospectus. So long as any institution of bankruptcy your partnership; remove a gen- Preferred OP Units are outstand- proceedings, an assignment for the eral partner; elect one or more ing, in addition to any other vote benefit of creditors and certain general partners; and approve or or consent of partners required by transfers by the general partner of disapprove the sale of all or law or by the AIMCO Operating its interest in the AIMCO Operating substantially all of the assets Partnership Agree- Part-
S-68 883 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS of your partnership. The consent of ment, the affirmative vote or nership or the admission of a the limited partners owing a consent of holders of at least 50% successor general partner. majority of the outstanding units of the outstanding Preferred OP is also necessary to confess a Units will be necessary for Under the AIMCO Operating Partner- judgment exceeding $100,000, exe- effecting any amendment of any of ship Agreement, the general partner cute any agreement or assignment the provisions of the Partnership has the power to effect the for the benefit of creditors of Unit Designation of the Preferred acquisition, sale, transfer, your partners, permit an affiliate OP Units that materially and exchange or other disposition of of the general partners to use your adversely affects the rights or any assets of the AIMCO Operating partnership's property other than preferences of the holders of the Partnership (including, but not in furtherance of your Preferred OP Units. The creation or limited to, the exercise or grant partnership's business and lend any issuance of any class or series of of any conversion, option, partnership funds to the general partnership units, including, privilege or subscription right or partners or their affiliates. 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 the your partnership OP Units, shall not be deemed to Partnership) or the merger, by retiring, unless the remaining materially adversely affect the consolidation, reorganization or general partner elects to continue rights or preferences of the other combination of the AIMCO your partnership within 120 days or holders of Preferred OP Units. With Operating Partnership with or into if the there is no remaining respect to the exercise of the another entity, all without the general partner, the limited above described voting rights, each consent of the OP Unitholders. partners owning more the 50% of the Preferred OP Units shall have one then outstanding units may elect a (1) vote per Preferred OP Unit. The general partner may cause the new general partner to continue dissolution of the AIMCO Operating your partnership. 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 are to be distributed provided, however, that at any time portion as the general partner may from time to time but no less often and from time to time on or after in its sole and absolute discretion than quarterly and not later than the fifth anniversary of the issue determine, of Available Cash (as ninety days after the end of the 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. Your of five years, and (ii) the annual established by the general partner partnership has not made dividend rate on the most recently with respect to such quarter, in distributions in the past and is issued AIMCO non-convertible accordance with their respective not projected to make distributions preferred stock which ranks on a interests in the AIMCO Operating in 1998. parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-69 884 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 and be Preferred OP Units and the OP Units. The AIMCO Operating Part- substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the such person if: (1) such transfer on any securities exchange. The transferability of the OP Units. is in compliance with applicable Preferred OP Units are subject to Until the expiration of one year Federal and state securities law, restrictions on transfer as set from the date on which an OP (2) a written assignment has been forth in the AIMCO Operating Unitholder acquired OP Units, duly executed by the assignor and Partnership Agreement. subject to certain exceptions, such assignee, (3) the written approval OP Unitholder may not transfer all of the managing general partner Pursuant to the AIMCO Operating or any portion of its OP Units to which may be withheld in the sole Partnership Agreement, until the any transferee without the consent and absolute discretion of the expiration of one year from the of the general partner, which managing general partner has been date on which a holder of Preferred consent may be withheld in its sole granted and (4) the assignor or the OP Units acquired Preferred OP and absolute discretion. After the assignee pays a transfer fee. Units, subject to certain expiration of one year, such OP exceptions, such holder of Unitholder has the right to There are no redemption rights Preferred OP Units may not transfer transfer all or any portion of its associated with your units. all or any portion of its Pre- OP Units to any person, subject to 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
S-70 885 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-71 886 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 generated in that capacity from your partnership. The property manager received management fees of $333,000 in 1996, $269,000 in 1997 and $135,829 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's 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'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 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-72 887 YOUR PARTNERSHIP GENERAL Shearson/Calmark Heritage Park II Ltd. is a California limited partnership which raised net proceeds of approximately $18,650,000 in 1986 through a private offering. The promoter for the private offering of your partnership was Shearson Lehman Brothers/Calmark. Insignia acquired your partnership in 1992. AIMCO acquired Insignia in October, 1998. There are currently a total of 286 limited partners of your partnership and a total of 373 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the small number of apartment properties described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on November 10, 1986 for the purpose of owning and operating a small number of apartment properties located in Escondido, California; Livermore, California; Anaheim, California and Chino, California, known as "Heritage Park Escondido Apartments," "Heritage Park Livermore Apartments," "Heritage Village Anaheim Apartments" and "Villa Serena Apartments." There are 196 apartment units in Heritage Park Escondido Apartments. The average annual rent per apartment unit is $5,893. In both 1996 and 1997, Heritage Park Escondido Apartments had an average occupancy rate of 96.4%. Heritage Park Livermore Apartments has 167 apartment units. The total rentable square footage is 88,608 square feet. In both 1996 and 1997, Heritage Park Livermore Apartments had an average occupancy rate of approximately of 95.81%. The average annual rent per apartment unit is $7,640. In Heritage Village Anaheim Apartments, there are 196 apartment units. The total rentable square footage is 118,956 square feet and the average annual rent per apartment unit is $6,971. In both 1996 and 1997, Heritage Park Anaheim Apartments had an average occupancy rate of 96.43%. There are 186 apartment units in Villa Serena Apartments. The total rentable square footage is 90,960 square feet and the average annual rent per apartment unit is $5,509. In both 1996 and 1997, Villa Serena Apartments had an average occupancy rate of 96.83%. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since 1992, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $333,000, $269,000 and $135,829, respectively. The manager of your partnership's property is an affiliate of the general partner of your partnership and of AIMCO. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is not limited in its ability to expand its investment portfolio. Your partnership will terminate on March 9, 2011 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. S-73 888 Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is not limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage notes outstanding on Heritage Park Escondido Apartments of $6,150,000, a Heritage Park Livermore Apartments of $6,870,000 and Heritage Village Anaheim Apartments of $7,685,000 payable to Wells Fargo and First Trust of NY, which bear interest at variable rates and are due from 2007 to 2022. There is also a mortgage note on Villa Serena Apartments, the balance of which is $4,980,103, as of June 30, 1998. The note is payable to GMAC, bears interest at 6.25% and is due November 2007. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-74 889 Below is selected financial information for Calmark Heritage Park II Ltd. taken from the financial statements described above. See "Index to Financial Statements."
CALMARK HERITAGE PARK II LTD. ------------------------------------------------------------------------------------------------------ JUNE 30, DECEMBER 31, --------------------------- ------------------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ ------------ ------------ BALANCE SHEET DATA Cash and Cash Equivalents......... $ 776,466 $ 1,196,512 $ 820,000 $ 222,000 $ 298,129 $ 301,741 $ 714,562 Land & Building....... 33,135,451 35,127,866 33,039,000 39,473,000 42,066,279 41,887,957 43,508,956 Accumulated Depreciation........ (12,904,694) (14,100,298) (12,444,000) (13,639,000) (13,687,276) (12,563,660) (11,394,522) Other Assets.......... 2,281,111 3,770,709 3,851,000 3,562,000 3,120,709 3,020,656 2,639,988 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Assets..... $ 23,288,334 $ 25,994,789 $ 25,266,000 $ 29,618,000 $ 31,797,841 $ 32,646,694 $ 35,468,984 ============ ============ ============ ============ ============ ============ ============ Mortgage & Accrued Interest............ $ 29,798,625 $ 31,673,640 $ 31,540,000 $ 36,865,000 $ 39,312,783 $ 39,142,350 $ 39,766,148 Other Liabilities..... 201,609 295,526 291,000 352,000 327,402 418,056 370,329 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Liabilities.. 30,000,234 36,965,819 31,831,000 37,217,000 39,640,185 39,560,406 40,136,477 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Partners Deficit...... $ (6,711,900) $ (5,974,377) $ (6,565,000) $ (7,599,000) $ (7,842,344) $ (6,913,712) $ (4,667,493) ============ ============ ============ ============ ============ ============ ============
CALMARK HERITAGE PARK II LTD. ------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- --------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ----------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue.................... $2,457,311 $2,451,428 $4,884,000 $5,965,000 $6,079,925 $ 5,916,309 $5,803,585 Other Income...................... 103,325 110,230 276,000 177,000 193,029 162,435 264,204 ---------- ---------- ---------- ---------- ---------- ----------- ---------- Total Revenue............ 2,560,636 2,561,658 5,160,000 6,142,000 6,272,954 6,078,744 6,067,789 ---------- ---------- ---------- ---------- ---------- ----------- ---------- Operating Expenses................ 1,262,593 1,083,762 2,441,000 2,384,000 2,509,899 2,452,985 1,968,263 General & Administrative.......... 144,023 68,561 115,000 476,000 313,397 289,100 661,883 Depreciation...................... 461,000 461,000 922,000 1,196,000 1,254,087 1,299,612 1,284,038 Interest Expense.................. 652,784 654,505 1,819,000 2,404,000 2,635,984 2,342,567 2,353,119 Property Taxes.................... 185,965 201,207 361,000 443,000 488,219 474,088 491,992 ---------- ---------- ---------- ---------- ---------- ----------- ---------- Total Expenses........... 2,706,365 2,469,035 5,658,000 6,903,000 7,201,586 6,858,352 6,759,295 ---------- ---------- ---------- ---------- ---------- ----------- ---------- Net Income (Loss) Before Extraordinary Item..... $ (145,729) 92,623 (498,000) (761,000) $ (928,632) (779,608) $ (691,506) ========== ========== ========== ========== ========== =========== ========== Extraordinary Item................ -- 1,532,000 1,532,000 1,004,000 -- (1,466,611) -- ========== ========== ========== ========== ========== =========== ========== Net Income (Loss)........ $ (145,729) $1,624,623 $1,034,000 $ 243,000 $ 928,632 $(2,246,219) $ 691,506 ========== ========== ========== ========== ========== =========== ==========
S-75 890 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized a net loss of $145,729 for the six months ended June 30, 1998, compared to $1,624,623 for the six months ended June 30, 1997. The decrease in net income of $1,770,352, or 108.97% was primarily the result of an extraordinary gain on the foreclosure of two of the partnerships properties in 1997. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,560,636 for the six months ended June 30, 1998, compared to $2,561,658 for the six months ended June 30, 1997, a decrease of $1,022, or .04%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,262,593 for the six months ended June 30, 1998, compared to $1,083,762 for the six months ended June 30, 1997, an increase of $178,831 or 16.50%. This is due primarily to non-capitalized exterior and parking lot repairs and major landscaping. Management expenses totaled $135,829 for the six months ended June 30, 1998, compared to $130,766 for the six months ended June 30, 1997, an increase of $5,063, or 3.87%. General and Administrative Expenses General and administrative expenses totaled $144,023 for the six months ended June 30, 1998 compared to $68,561 for the six months ended June 30, 1997, an increase of $75,462 or 110.07%. The increase is primarily due to an increase in legal and other professional fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $652,784 for the six months ended June 30, 1998, compared to $654,505 for the six months ended June 30, 1997, a decrease of $1,721, or .26%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $1,034,000 for the year ended December 31, 1997, compared to $243,000 for the year ended December 31, 1996. The increase in net income of $791,000, or 325.51% was primarily the result of the reduced expenses related to the sale and foreclosure of two of the properties in 1996 and early 1997. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $5,160,000 for the year ended December 31, 1997, compared to $6,142,000 for the year ended December 31, 1996, a decrease of $982,000, S-76 891 or 15.99%. The decrease resulted from the sale and foreclosure of two of the partnership's properties during 1996 and early 1997. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $2,441,000 for the year ended December 31, 1997, compared to $2,384,000 for the year ended December 31, 1996, an increase of $57,000 or 39%. Management expenses totaled $269,000 for the year ended December 31, 1997, compared to $333,000 for the year ended December 31, 1996, a decrease of $64,000, or 19.22%. The decrease resulted from the sale and foreclosure of two of the Partnership's properties during 1996 and early 1997. General and Administrative Expenses General and administrative expenses totaled $115,000 for the year ended December 31, 1997 compared to $476,000 for the year ended December 31, 1996, a decrease of $361,000 or 75.84%. The decrease is primarily due to the sale and foreclosure of two of the partnership's properties during 1996 and early 1997. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,819,000 for the year ended December 31, 1997, compared to $2,404,000 for the year ended December 31, 1996, a decrease of $585,000, or 24.33%. The decrease results from the extinguishment of two mortgages during 1996 and early 1997 related to the sale and foreclosure of two properties. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $243,000 for the year ended December 31, 1996, compared to a net loss of $(928,632) for the year ended December 31, 1995. The increase in net income of $1,171,632, or 126.17% was primarily the result of a gain on the foreclosure of one of the partnership's properties during 1996 and the reduced expenses subsequent to the foreclosure. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $6,142,000 for the year ended December 31, 1996, compared to $6,272,954 for the year ended December 31, 1995, a decrease of $130,954, or 2.09%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $2,384,000 for the year ended December 31, 1996, compared to $2,509,899 for the year ended December 31, 1995, a decrease of $125,899 or 5.02%. The decrease is primarily due to reduced property expenses after the foreclosure of one of the partnership's properties during 1996. Management expenses totaled $333,000 for the year ended December 31, 1996, compared to $334,527 for the year ended December 31, 1995, a decrease of $1,527, or 0.46%. General and Administrative Expenses General and administrative expenses totaled $476,000 for the year ended December 31, 1996 compared to $313,397 for the year ended December 31, 1995, an increase of $162,603 or 51.88%. The increase is S-77 892 primarily due to an increase in professional and other administration fees associated with the bankruptcy proceedings. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $2,404,000 for the year ended December 31, 1996, compared to $2,635,984 for the year ended December 31, 1995, a decrease of $231,984, or 8.80%. The decrease results from the extinguishment of one mortgage related to the foreclosure of one of the properties in mid-1996. Liquidity and Capital Resources As of June 30, 1998, your partnership had $776,466 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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's agreement of limited partnership does not limit the liability of the general partners to your partnership or the limited partners for any act performed in their capacity as general partner. The general partner of your partnership is owned by AIMCO. See "Conflicts of Interest." Your partnership's agreement of limited partnership does provide that your partnership will indemnify the general partners of your partnership and their affiliates are entitled to indemnification from any expense, liability or loss, including attorney's fees incurred in connection with the defense of any action or omission by the general partners performed within the scope of the authority conferred by your partnership's agreement of limited partnership, except for acts or omissions constituting fraud, bad faith, willful misconduct or gross negligence. Notwithstanding the foregoing, your partnership will not indemnify any person for any liabilities under federal and state securities law unless (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations, (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or (iii) a court of competent jurisdiction approves a settlement of the claims. If a claim of indemnification (other than for expenses incurred in a successful defense) is asserted against your partnership, your partnership will notify the court of the position of the SEC with respect to the issue of indemnification for securities law violations. Such indemnification paid by your partnership will be to the extent of your partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. The general partners may, on behalf of your partnership, obtain a general partner liability insurance policy at your partnership's expense that would insure the general partners and their affiliates for liabilities they may incur with respect to claims made against them for certain wrongful or allegedly wrongful acts, including certain errors, misstatements, misleading statement, omissions, neglect or breached of duty, provided that your partnership will not be required to pay the premiums for this policy to the extent of coverage for those acts and omission as to which the foregoing parties could not receive indemnification under your partnership's agreement of limited partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions Your partnership has not made distribution in the last five years. The original cost per unit was $582,813. S-78 893 Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0 0 1995......................... 0 0 0 1996......................... 0 0 0 1997......................... 0 0 0 1998 (through June 30)....... 1 0.27% 1
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 of fees) in its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- --------------- 1994........................................................ $37,392 1995........................................................ $46,404 1996........................................................ $31,000 1997........................................................ $25,000
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................................ $334,527 1996........................................................ $333,000 1997........................................................ $269,000 1998 (through June 30)...................................... $135,829
S-79 894 If the offer had been made in such prior periods, there would not have been any material difference in the compensation and distributions that would have been paid to the general partner of your partnership, or the company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Calmark Heritage Park II Ltd. at December 31, 1997, 1996 and 1995 and for each of the three years then ended, appearing in this Prospectus Supplement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-80 895 INDEX FINANCIAL STATEMENT
FINANCIAL STATEMENTS OF CALMARK HERITAGE PARK II LTD. PAGE ----------------------------------------------------- ---- Condensed Balance Sheet as of June 30, 1998 (Unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (Unaudited)........................ F-4 Note A -- Basis of Presentation............................. F-4 Independent Auditors' Report................................ F-5 Balance Sheet as of December 31, 1997....................... F-6 Statement of Operations for the year ended December 31, 1997...................................................... F-7 Statement of Changes in Partners' Deficit for the year ended December 31, 1997......................................... F-8 Statement of Cash Flows for the year ended December 31, 1997...................................................... F-9 Notes to Financial Statements............................... F-10 Independent Auditors' Report................................ F-16 Balance Sheet as of December 31, 1996....................... F-17 Statement of Operations for the year ended December 31, 1996...................................................... F-18 Statement of Changes in Partners' Deficit for the year ended December 31, 1996......................................... F-19 Statement of Cash Flows for the year ended December 31, 1996...................................................... F-20 Notes to Financial Statements............................... F-22 Independent Auditors' Report................................ F-27 Balance Sheet as of December 31, 1995....................... F-28 Statement of Operations for the year ended December 31, 1995...................................................... F-29 Statement of Changes in Partners' Deficit for the year ended December 31, 1995......................................... F-30 Statement of Cash Flows for the year ended December 31, 1995...................................................... F-31 Notes to Financial Statements............................... F-32
F-1 896 CALMARK HERITAGE PARK II LTD. CONDENSED BALANCE SHEET JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 776,466 Receivables and Deposits.................................... 372,484 Investments................................................. -- Restricted Escrows.......................................... 745,026 Other Assets................................................ 1,163,601 Investment Property: Land...................................................... $ 4,154,014 Building and related personal property.................... 28,981,437 ------------ 33,135,451 Less: Accumulated depreciation............................ (12,904,694) 20,230,757 ------------ ------------ Total Assets:..................................... $ 23,288,334 ============ LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 37,505 Other Accrued Liabilities................................... 57,773 Accrued Interest............................................ 2,563,522 Property Taxes Payable...................................... -- Tenant Security Deposits.................................... 106,331 Notes Payable............................................... 27,235,103 Partners' Capital........................................... (6,711,900) ------------ Total Liabilities and Partners' Capital........... $ 23,288,334 ============
See accompanying note F-2 897 CALMARK HERITAGE PARK II LTD. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 ---------- ---------- Revenues: Rental Income............................................. $2,457,311 $2,451,428 Other Income.............................................. 103,325 110,230 (Gain) Loss on Disposition of Property.................... -- 1,532,000 Casualty Gain/Loss........................................ -- -- ---------- ---------- Total Revenues.................................... 2,560,636 4,093,658 Expenses: Operating Expenses........................................ 1,262,593 1,083,762 General and Administrative Expenses....................... 144,023 68,561 Depreciation Expense...................................... 461,000 461,000 Interest Expense.......................................... 652,784 654,505 Property Tax Expense...................................... 185,965 201,207 ---------- ---------- Total Expenses.................................... 2,706,365 2,469,035 ---------- ---------- Net Income (Loss)................................. $ (145,729) $1,624,623 ========== ==========
See accompanying note F-3 898 CALMARK HERITAGE PARK II LTD. CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDING JUNE 30, 1998 AND 1997 (UNAUDITED)
JUNE 30, JUNE 30, 1998 1997 ---------- ---------- Operating Activities: Net Income (loss)......................................... $ (145,729) $1,624,623 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 502,929 489,694 Gain on sale of investment property.................... -- (1,532,000) Changes in accounts: Receivables and deposits and other assets............ (220,014) (406,751) Accounts Payable and accrued expenses................ (373,040) (78,284) ---------- ---------- Net cash provided by (used in) operating activities...................................... (235,854) 97,282 ---------- ---------- Investing Activities: Property improvements and replacements.................... (96,757) (56,568) Proceeds from sale of investment property................. -- 907,000 Net (increase)/decrease in restricted escrows............. 1,747,974 169,348 ---------- ---------- Net cash provided by (used in) investing activities...................................... 1,651,217 1,019,780 ---------- ---------- Financing Activities: Payments on mortgage...................................... (58,897) (37,550) Payments on notes......................................... (1,600,000) (105,000) Additional borrowings..................................... 200,000 -- Partners' Distributions................................... -- -- ---------- ---------- Net cash provided by (used in) financing activities...................................... (1,458,897) (142,550) ---------- ---------- Net increase (decrease) in cash and cash equivalents..................................... (43,534) 974,512 Cash and cash equivalents at beginning of year.............. 820,000 222,000 ---------- ---------- Cash and cash equivalents at end of period.................. $ 776,466 $1,196,512 ========== ==========
NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Calmark Heritage Park II Ltd. as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-4 899 REPORT OF INDEPENDENT AUDITORS The Partners Calmark Heritage Park II Limited Partnership We have audited the accompanying balance sheet of Calmark Heritage Park II Limited Partnership as of December 31, 1997, and the related statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Calmark Heritage Park II Limited Partnership at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that Calmark Heritage Park II Limited Partnership will continue as a going concern. As more fully described in Note A, the Partnership has incurred recurring operating losses and is currently in default on a portion of its long-term debt. In addition, the letters of credit which provide additional security on $22,305,000 in indebtedness expire in June 1998. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note A. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. /s/ ERNST & YOUNG LLP March 17, 1998 Greenville, South Carolina F-5 900 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents:.................................. $ 820 Receivables and deposits.................................... 278 Restricted escrows.......................................... 2,493 Other assets................................................ 1,080 Investment properties (Notes C and D) Land...................................................... $ 4,154 Buildings and related personal property................... 28,885 ------- 33,039 Less accumulated depreciation............................. (12,444) 20,595 ------- -------- $ 25,266 ======== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 122 Tenant security deposits.................................. 104 Accrued interest.......................................... 2,846 Other liabilities......................................... 65 Long-term debt, including $23,255 in default (Note C)..... 28,694 -------- 31,831 Partners' deficit: General Partners.......................................... $ (66) Limited Partners.......................................... (6,499) (6,565) ------- -------- $ 25,266 ========
See accompanying notes. F-6 901 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Revenues: Rental income............................................. $4,884 Other income.............................................. 276 Gain on sale of investment property....................... 1,532 ------ 6,692 Expenses: Operating................................................. $2,441 General and administrative................................ 115 Interest.................................................. 1,819 Depreciation.............................................. 922 Property taxes............................................ 361 5,658 ------ ------ Net income.................................................. $1,034 ======
See accompanying notes. F-7 902 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ------- Partners' deficit at December 31, 1996...................... $(76) $(7,523) $(7,599) Net income................................................ 10 1,024 1,034 ---- ------- ------- Partners' deficit at December 31, 1997...................... $(66) $(6,499) $(6,565) ==== ======= =======
See accompanying notes. F-8 903 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Operating activities Net income................................................ $ 1,034 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 922 Amortization........................................... 69 Gain on sale of investment property.................... (1,532) Changes in operating assets and liabilities: Receivables and deposits............................. 28 Other assets......................................... (148) Accounts payable..................................... (49) Tenant security deposit liabilities.................. (29) Accrued interest..................................... 380 Other liabilities.................................... 17 ------- Net cash provided by operating activities......... 692 Investing activities Property improvements and replacements.................... (85) Net deposits to restricted escrows........................ (238) ------- Net cash used in investing activities............. (323) Financing activities Proceeds from sale of investment property................. 907 Payments on long-term debt................................ (678) ------- Net cash provided by financing activities......... 229 ------- Net increase in cash and cash equivalents......... 598 Cash and cash equivalents at December 31, 1996............ 222 ------- Cash and cash equivalents at December 31, 1997............ $ 820 ======= Supplemental disclosure of cash flow information Cash paid for interest expense.............................. $ 1,369 ======= Supplemental disclosure of noncash activity Adjustment to long-term debt in connection with the assumption of mortgage debt related to the sale of Las Vegas Apartments in 1997.................................. $ 5,027 =======
See accompanying notes. F-9 904 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (IN THOUSANDS) NOTE A -- GOING CONCERN The accompanying financial statements have been prepared assuming Calmark Heritage Park II Limited Partnership (the "Partnership") will continue as a going concern. The Partnership has incurred recurring operating losses and is in default on a portion of its long term debt. The Partnership incurred an operating loss of approximately $498,000 for the year ended December 31, 1997, before the gain recognized on the sale of an investment property. As of December 31, 1997, there is a partners' deficit of approximately $6,565,000. The Partnership realized positive cash flow of approximately $598,000 for 1997, due primarily to net proceeds received from the sale of an investment property. The Partnership has indebtedness under three 1992 Series A Bond Issues, with a balance at December 31, 1997 of $22,305,000. These bonds are secured by first deeds of trust on the Anaheim, Escondido, and Livermore properties. The Letters of Credit on these bonds expired in November 1997, and the Partnership has received extensions through June 1998. The bonds are in default due to a violation of the loan agreements that require letters of credit for a minimum of one year. Management is presently in negotiations with the Trustees to re-write the bonds in order to obtain more favorable terms. The subordinated debt for Anaheim and Escondido matured in January 1997. The Escondido note in the amount of $950,000, plus related accrued interest was extended until March 1998; however, the extension has expired and such amounts are in default due to nonpayment. The Partnership has received an extension through May 15, 1998 for the Anaheim note. Management is also in negotiations to modify these subordinated notes. There can be no assurance that these negotiations with the lenders will be successful. Currently, there are no plans to sell any of the remaining properties. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from this uncertainty. NOTE B -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership was formed in November 1986 to acquire and operate senior citizens apartment communities located in California and Nevada. The Partnership will terminate on March 9, 2011 unless terminated sooner by vote of the Limited Partners or other dissolution. Other dissolution may occur upon the bankruptcy or dissolution of a General Partner unless the Partners elect to continue the Partnership. The General Partners of the Partnership are Heritage Park Investors, Inc., a California corporation (the Managing General Partner), Calmark Investors, Ltd., a California Limited Partnership (the Associate General Partner), and Heritage Park II, Inc., a Delaware corporation (the Lehman General Partner). Allocations to Partners Income and Losses Income from operations is allocated pro rata to the General Partners and to the Limited Partners (collectively the "Partners") as a class in the same ratio as cash distributions are made to such partners (see below). In the event that no cash distributions are made to the Partners during any year, income from operations shall be allocated 1% to the General Partners and 99% to the Limited Partners. F-10 905 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Losses from operations are generally allocated 1% to the General Partners and 99% to the Limited Partners. Income from disposition or partial disposition of Partnership property and income upon termination and liquidation of the Partnership will be allocated as follows: a. To Partners with negative adjusted capital account balances (as defined), after accounting for distributions described below, in proportion to their negative adjusted capital account balances. b. Any remaining income will be allocated 5% to the Lehman General Partner, 25% collectively to the Managing General Partner and Associate General Partner and 70% to the Limited Partners. Losses from disposition or partial disposition of the Partnership property and all losses upon the termination and liquidation of the Partnership shall be allocated as follows: a. To all Partners with positive adjusted capital balances in proportion to their adjusted capital balances. b. Any remaining losses will be allocated 1% to the General Partners and 99% to the Limited Partners. Cash Distributions Cash from operations is to be distributed, when available, not less often than quarterly and not later than ninety days after the end of each fiscal quarter of the Partnership in the following order of priority: a. 1% collectively to the Managing General Partner and the Associate General Partner and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to a 10% per annum cumulative (but not compounded) return on their adjusted interest investment (as defined). b. The remainder is allocated 25% collectively to the Managing General Partner and the Associate General Partner, 5% to the Lehman General Partner and 70% to the Limited Partners as a class. In general, any proceeds remaining after the sale of the properties and dissolution of the Partner ship shall be distributed to the Partners in accordance with their capital accounts. Investment Properties Investment properties are recorded at cost. Depreciation is provided by the straight-line method over the estimated lives of the investment properties and related personal property. Loan Costs Loan costs are amortized on a straight-line basis over the lives of the respective debt. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in banks, money market funds and certificates of deposit with original maturities of less than 90 days. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and includes such deposits in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. F-11 906 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Leases The Partnership generally leases apartment units for twelve-month terms or less. Income Taxes Under provisions of the Internal Revenue Code and applicable state revenue and taxation codes, partnerships are generally not subject to income taxes. For tax purposes, any income or loss realized is that of the individual partners, not the Partnership. Advertising The Partnership expenses the costs of advertising as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE C -- LONG-TERM DEBT Long-term debt at December 31, 1997 consists of the following (in thousands): Indebtedness under three 1992 Series A Bond Issues to various housing authorities bearing interest at variable rates, secured by first deeds of trust on the Anaheim, Escondido, and Livermore properties. Interest payments to the trustee are required semi-annually; the rate is reset every seven days and is to be that which would produce a par bid if the bonds were sold on the first day of the next seven-day reset period. The average annual interest rates for 1997 was 3.5%. Two of the bond issues mature in 2007 and one in 2022; they can be redeemed prior to maturity without penalty, subject to certain provisions. This indebtedness is in default due to a violation of a loan covenant related to required letters of credit terms (see Note A).............................................. $22,305 Mortgage note payable bearing interest at 9.78% per annum, secured by first deeds of trust on the Villa Serena. This note requires monthly payments of principal and interest of approximately $47 with a balloon payment of $3,824 due in November 2007.......................................... 5,039 Subordinated mortgage notes payable on the Anaheim, Livermore and Escondido properties. The Anaheim note in the amount of $300 bears interest at 12% and requires monthly interest payments of approximately $3. All unpaid interest plus the principal amount is due in May 1998. The Livermore note in the amount of $100 bears interest at 5% per annum and the interest and principal amounts are due in 2084. The Escondido note in the amount of $950 bears interest at 12% per annum, with monthly payments of 25% of net cash flow as defined, applied first to unpaid interest and then to principal This note is in default due to maturity in March 1998.................................... 1,350 ------- $28,694 =======
The Partnership has irrevocable letters of credit with First Interstate Bank in the amounts of $8,557,000 (Anaheim), $7,142,000 (Escondido) and $7,263,000 (Livermore), respectively. These letters of credit are F-12 907 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) additional security for the 1992 Series A Bond Issues, and are secured by second deeds of trust on the Anaheim, Escondido and Livermore properties. The Partnership is required to pay monthly servicing fees of approximately 1% per annum, based on the out standing amounts. These letters of credit expire in June 1998. The Partnership also has a standby letter of credit in the amount of $8,980,000 which is additional security for the Anaheim letter of credit. This standby letter of credit expires in May 1998. The Partnership is required to fund a Cash Collateral Account and Debt Service Reserve Account, based on monthly net cash flow as defined, from these three properties, up to a combined maximum of $1,600,000. These accounts serve as additional collateral for the bonds. At December 31, 1997, the balance in the Cash Collateral Account and Debt Service Reserve was $1,629,000. Principal maturities of long-term debt subsequent to December 31, 1997 are as follows (in thousands): 1998 (including $23,255 in default)...................... $23,632 1999..................................................... 84 2000..................................................... 93 2001..................................................... 103 2002..................................................... 113 Thereafter............................................... 4,669 ------- $28,694 =======
NOTE D -- GROUND LEASE The Livermore property is subject to a ground lease that expires in November 2084. The lease provides for rental payments of $5,000 per month. In addition, the Partnership is required to pay annually the difference between the minimum monthly rent described above and 4 1/2% of gross rental income from the Livermore property for the preceding 12 months. The expense for 1997 was $60,000. Future minimum lease payments subsequent to December 31, 1997 are summarized as follows (in thousands): 1998...................................................... $ 60 1999...................................................... 60 2000...................................................... 60 2001...................................................... 60 2002...................................................... 60 Thereafter................................................ 4,910 ------ $5,210 ======
NOTE E -- TRANSACTIONS WITH AFFILIATED PARTIES An affiliate of Insignia Financial Group, Inc. ("Insignia"), owns the capital stock of the Managing General Partner with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $269 Reimbursement for services of affiliates.................... 25
For the period from January 1, 1997 to August 31, 1997, the Partnership insured its properties under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of F-13 908 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the Managing General Partner, who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. NOTE F -- SALE OF PROPERTY On January 21, 1997, the Partnership sold Heritage Park Las Vegas to an unaffiliated party. The buyer assumed the mortgage note payable which had an outstanding balance of approximately $5,027,000. The Partnership received net proceeds of approximately $907,000 after payment of closing costs. This disposition resulted in a gain of approximately $1,532,000. NOTE G -- YEAR 2000 (UNAUDITED) The Partnership is dependent upon Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. Insignia believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. NOTE H -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND RELATED COST CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION - ----------- ------------ ------ ----------- ---------------- Anaheim....................................... $ 8,085 $2,408 $ 6,946 $ 127 Escondido..................................... 8,000 749 8,064 (1,019) Livermore..................................... 7,270 0 8,353 138 Villa Serena.................................. 5,339 1,149 6,510 (234) ------- ------ ------- ------- Totals.............................. $28,694 $4,306 $29,873 $ (988) ======= ====== ======= =======
F-14 909 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS - ----------- ------ ----------- ------- ------------ -------- ------------- Anaheim...................... $2,408 $ 7,073 $ 9,481 $ 3,058 1986 5-25 Escondido.................... 650 7,045 7,695 3,317 1986 5-25 Livermore.................... 0 8,491 8,491 3,250 1986 5-25 Villa Serena................. 1,096 6,276 7,372 2,819 1986 5-25 ------ ------- ------- ------- ---- ---- Woodmere..................... $4,154 $28,885 $33,039 $12,444 ====== ======= ======= =======
Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): INVESTMENT PROPERTY Balance at beginning of year................................ $39,475 Property disposals.......................................... (6,520) Property improvements....................................... 84 ------- Balance at end of year...................................... $33,039 ======= ACCUMULATED DEPRECIATION Balance at beginning of year................................ $13,639 Property disposals.......................................... (2,117) Additions charged to expense................................ 922 ------- Balance at end of year...................................... $12,444 =======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $33,849,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $23,684,000. NOTE I EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-15 910 REPORT OF INDEPENDENT AUDITORS The Partners Calmark Heritage Park II Limited Partnership We have audited the accompanying balance sheet of Calmark Heritage Park II Limited Partnership as of December 31, 1996, and the related statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Calmark Heritage Park II Limited Partnership at December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that Calmark Heritage Park II Limited Partnership will continue as a going concern. As more fully described in Note A, the Partnership has incurred recurring operating losses and is currently in default on substantially all of its long-term debt. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note A. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. /s/ ERNST & YOUNG LLP March 19, 1997 Greenville, South Carolina F-16 911 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31, 1996 (IN THOUSANDS) ASSETS Cash and cash equivalents: Unrestricted.............................................. $ 222 Restricted -- tenant security deposits.................... 135 -------- $ 357 Accounts receivable......................................... 2 Cash collateral accounts (Note C)........................... 1,517 Bond fund (Note Q........................................... 75 Other restricted escrows.................................... 663 Escrow deposits for taxes and insurance..................... 169 Other assets................................................ 61 Loan costs, net of accumulated amortization of $479 (Note B)........................................................ 940 Investment properties (Notes B, C and D): Land...................................................... 5,309 Buildings and related personal property................... 34,164 -------- 39,473 Less accumulated depreciation............................. (13,639) 25,834 -------- ------- $29,618 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 171 Accrued and sundry liabilities: Tenant security deposits............................... $ 134 Interest............................................... 2,466 Other.................................................. 47 2,647 -------- Long-term debt, including $29,286,000 in default at December 31, 1996 (Note C)............................. 34,399 ------- 37,217 Partners' deficit: General Partners.......................................... (76) Limited Partners.......................................... (7,523) (7,599) -------- ------- $29,618 =======
See accompanying notes. F-17 912 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Revenues: Rental income............................................. $5,965 Other income.............................................. 177 ------ 6,142 Expenses: Operating................................................. $ 667 Administrative............................................ 476 Interest.................................................. 2,404 Letter of credit fees..................................... 245 Depreciation and amortization............................. 1,196 Advertising and rental incentives......................... 80 Property taxes............................................ 443 Utilities................................................. 408 Management fees (Note E).................................. 333 Maintenance............................................... 463 Ground lease (Note D)..................................... 60 Insurance (Note E)........................................ 128 6,903 ------ Loss before disposal of property............................ (761) Gain on foreclosure of investment property (Note C)......... 1,004 ------ Net income.................................................. $ 243 ======
See accompanying notes. F-18 913 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ------- Partners' deficit at December 31, 1995...................... $(78) $(7,764) $(7,842) Net income................................................ 2 241 243 ---- ------- ------- Partners' deficit at December 31, 1996...................... $(76) $(7,523) $(7,599) ==== ======= =======
See accompanying notes. F-19 914 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Operating activities Net income................................................ $ 243 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 1,116 Amortization........................................... 80 Gain on foreclosure of investment property............. (1,004) Changes in operating assets and liabilities: Restricted cash...................................... 8 Accounts receivable.................................. 7 Other assets......................................... 25 Escrow deposits for taxes and insurance.............. (27) Accounts payable..................................... 101 Accrued interest..................................... 455 Tenant security deposit liabilities.................. (1) Other accrued and sundry liabilities................. (7) ------- Net cash provided by operating activities......... 996 Investing activities Property improvements and replacements.................... (136) Deposits to cash collateral accounts...................... (254) Deposits to bond fund..................................... (162) Receipts from bond fund................................... 300 Receipts from other restricted escrows.................... 209 Deposits to other restricted escrows...................... (485) ------- Net cash used in investing activities............. (528) Financing activities Payments on long-term debt................................ (401) ------- Net increase in cash and cash equivalents......... 67 Cash and cash equivalents at December 31, 1995............ 155 ------- Cash and cash equivalents at December 31, 1996............ $ 222 ======= Supplemental disclosure of cash flow information Cash paid for interest expense.............................. $ 1,905 =======
F-20 915 SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES Foreclosure During 1996, Heritage Park Norco was foreclosed upon by Praedium Chesapeake, LLC. In connection with this foreclosure, the following balance sheet accounts were adjusted by the gain on the foreclosure of the property: Other assets............................................. $ (1) Investment properties.................................... (1,565) Tenant security deposits................................. 7 Interest................................................. 344 Other liabilities........................................ 61 Long-term debt........................................... 2,158 ------- Gain on foreclosure of investment property............... $ 1,004 =======
See accompanying notes. F-21 916 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE A -- GOING CONCERN The accompanying financial statements have-been prepared assuming Calmark Heritage Park II Limited Partnership ("the Partnership") will continue as a going concern. The Partnership is currently in default on substantially all of its long-term debt. The Partnership has also incurred recurring operating losses and has a partners' deficit at December 31, 1996. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. Management is involved in discussions with its lenders in attempt to restructure the debt which is in default. The outcome of these discussions is not presently determinable and the financial statements do not include any adjustments to reflect the possible future effects on the recover ability and classification of assets or amounts and classification of liabilities that may result from this uncertainty. NOTE B -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership (formerly known as Shearson/Calmark Heritage Park II, Ltd., a California Limited Partnership) was formed in November 1986 to acquire and operate senior citizens apartment communities located in California and Nevada. The Partnership will terminate on March 9, 2011 unless terminated sooner by vote of the Limited Partners or other dissolution. Other dissolution may occur upon the bankruptcy or dissolution of a General Partner unless the Partners elect to continue the Partnership. The General Partners of the Partnership are Heritage Park Investors, Inc., a California corporation (the Managing General Partner), Calmark Investors, Ltd., a California Limited Partnership (the Associate General Partner), and Heritage Park II, Inc., a Delaware corporation (the Lehman General Partner). Allocations to Partners Income and Losses Income from operations is allocated pro rata to the General Partners and to the Limited Partners (collectively the "Partners") as a class in the same ratio as cash distributions are made to such partners (see below). In the event that no cash distributions are made to the Partners during any year, income from operations shall be allocated 1% to the General Partners and 99% to the Limited Partners. Losses from operations are generally allocated 1% to the General Partners and 99% to the Limited Partners. Income from disposition or partial disposition of Partnership property and income upon termination and liquidation of the Partnership will be allocated as follows: a. To Partners with negative adjusted capital account balances (as defined), after accounting for distributions described below, in proportion to their negative adjusted capital account balances. b. Any remaining income will be allocated 5% to the Lehman General Partner, 25% to the Managing General Partner and Associate General Partner and 70% to the Limited Partners. Losses from disposition or partial disposition of the Partnership property and all losses upon the termination and liquidation of the Partnership shall be allocated as follows: a. To all Partners with positive adjusted capital balances in proportion to their adjusted capital balances. F-22 917 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) b. Any remaining losses will be allocated 1% to the General Partners and 99% to the Limited Partners. Cash Distributions Cash from operations is to be distributed, when available, not less often than quarterly and not later than ninety days after the end of each fiscal quarter of the Partnership in the following order of priority: a. 1% collectively to the Managing General Partner and the Associate General Partner and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to a 10% per annum cumulative (but not compounded) return on their adjusted interest investment (as defined). b. The remainder is allocated 25% collectively to the Managing General Partner and the Associate General Partner, 5% to the Lehman General Partner and 70% to the Limited Partners as a class. In general, any proceeds remaining after the sale of the properties and dissolution of the Partner ship shall be distributed to the Partners in accordance with their capital accounts. Investment Properties The Partnership accounts for its investment properties under FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Depreciation Depreciation is provided by the straight-line method over the estimated lives of the investment properties and related personal property. Loan Costs Loan costs are amortized on a straight-line basis over the lives of the respective debt. Cash and Cash Equivalents -- Unrestricted Cash The Partnership considers only unrestricted cash to be cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease. Deposits are refunded when the tenant vacates the apartment if there has been no damage. Leases The Partnership generally leases apartment units for twelve-month terms or less. F-23 918 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Income Taxes Under provisions of the Internal Revenue Code and applicable state revenue and taxation codes, partnerships are generally not subject to income taxes. For tax purposes, any income or loss realized is that of the individual partners, not the Partnership. Advertising The Partnership expenses the costs of advertising as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE C -- LONG-TERM DEBT Long-term debt at December 31, 1996 consists of the following (in thousands): Indebtedness under three 1992 Series A Bond Issues to various housing authorities bearing interest at variable rates, secured by first deeds of trust on the Anaheim, Escondido, and Livermore properties. Interest payments to the trustee are required semi-annually; the rate is reset every seven days and is to be that which would produce a par bid if the bonds were sold on the first day of the next seven-day reset period. The average annual interest rates for 1996 was 3.3%. Two of the bond issues mature in 2007 and one in 2022; they can be redeemed prior to maturity without penalty, subject to certain provisions... $22,605 Mortgage notes payable to various mortgage companies bearing interest at rates ranging from 9.78% to 11.125% per annum, secured by first deeds of trust on the Villa Serena and Las Vegas properties. These notes require monthly payments of principal and interest ranging from approximately $47,000 to $50,000, with balloon payments of $5,009,000 (Las Vegas) due in July 1997 and $3,823,999 (Villa Serena) due in November 2007...................................... 10,144 Subordinated mortgage notes payable on the Anaheim, Livermore and Escondido properties. The Anaheim note in the amount of $600,000 bears interest at 10.525% and requires monthly interest payments of approximately $4,100 All unpaid interest plus the principal amount is due in January 1997. The Livermore note in the amount of $100,000 bears interest at 5% per annum and the interest and principal amounts are due in 2084. The Escondido note in the amount of $950,000 bears interest at 12% per annum, with monthly payments of 25% of net cash flow as defined, applied first to unpaid interest and then to principal; any remaining unpaid principal and interest amounts are due in January 1997....................................... 1,650 ------- $34,399 =======
As disclosed in Note A, the Partnership is currently in default on the Series A Bond Issues. The Partnership has irrevocable letters of credit with First Interstate Bank in the amounts of $8,554,000 (Anaheim), $7,347,000 (Escondido) and $7,668,000 (Livermore), respectively. These letters of credit are additional security for the 1992 Series A Bond Issues, and are secured by second deeds of trust on the Anaheim, Escondido and Livermore properties. The Partnership is required to pay monthly servicing fees of F-24 919 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) approximately 1% per annum, based on the out standing amounts. The Partnership also has a standby letter of credit in the amount of $8,980,000 which is additional security for the Anaheim letter of credit. The Partnership is required to fund a Cash Collateral Account and Debt Service Reserve Account, based on monthly net cash flow as defined, from these three properties, up to a maxi mum of $1,200,000 and $400,000, respectively. The Debt Service Reserve Account is to be funded from monthly net cash flow after the Cash Collateral Account has been fully funded. These Accounts serve as additional collateral for the bonds. At December 31, 1996, the balances in the Cash Collateral Account and Debt Service Reserve were $1,404,000 and $-0-, respectively. The Partnership has a money market account which is restricted as additional collateral for the Las Vegas mortgage note payable. The balance in this cash collateral account at December 31, 1996 was $113,000. The debt encumbering Las Vegas Apartments matured in April 1996. The Partnership negotiated with the lender an extension on the debt through July 1997. The property was subsequently sold in January 1997 to Heritage Park Associates, LLC. See Note F concerning this sale. The mortgage note payable on the Las Vegas property and the subordinated mortgage notes payable on the Anaheim, Escondido, and Livermore properties are in default at December 31, 1996, due to cross default provisions on the Bonds. In addition, the subordinated mortgage notes payable on the Anaheim and Escondido properties were extended from their original maturity date of January 1, 1997 to February 1, 1997 (Anaheim) and March 1, 1997 (Escondido). The Partnership was unable to pay off the debt at the extended maturity dates which caused an additional event of default on this debt. In July 1996, Praedium Chesapeake, LLC executed a non-contested foreclosure on the Norco property. The $2,158,000 mortgage note payable had been in default since January 1995. As a result of the foreclosure, the mortgage note payable was satisfied resulting in a gain to the Partnership of $1,004,000. Principal maturities of long-term debt at December 31, 1996 are as follows (in thousands): 1997 (including $29,286 in default)...................... $29,355 1998..................................................... 77 1999..................................................... 84 2000..................................................... 93 2001..................................................... 103 Thereafter............................................... 4,687 ------- $34,399 =======
NOTE D -- GROUND LEASE The Livermore property is subject to a ground lease that expires in November 2084. The lease provides for rental payments of $5,000 per month. In addition, the Partnership is required to pay annually the difference between the minimum monthly rent described above and 4 1/2% of gross rental income from the Livermore property for the preceding 12 months. F-25 920 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Future minimum lease payments at December 31, 1996 are summarized as follows (in thousands): 1997...................................................... $ 60 1998...................................................... 60 1999...................................................... 60 2000...................................................... 60 2001...................................................... 60 Thereafter................................................ 4,970 ------ $5,270 ======
NOTE E -- TRANSACTIONS WITH AFFILIATED PARTIES An affiliate of Insignia Financial Group, Inc. ("Insignia"), owns the capital stock of the Managing General Partner with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1996 (in thousands): Property management fees.................................... $333 Reimbursement for services of affiliates.................... 31
The Partnership insures its properties under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the Managing General Partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations is not significant. NOTE F -- SUBSEQUENT EVENT -- SALE OF PROPERTY On January 21, 1997, the Partnership sold Heritage Park Las Vegas to an unaffiliated party. The buyer assumed the mortgage note payable which had an outstanding balance of approximately $5,027,000. The Partnership received net proceeds of approximately $900,000 after payment of closing costs. This disposition resulted in a gain of approximately $1,500,000. NOTE G -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-26 921 REPORT OF INDEPENDENT AUDITORS The Partners Calmark Heritage Park II Limited Partnership We have audited the accompanying balance sheet of Calmark Heritage Park II Limited Partnership as of December 31, 1995, and the related statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Calmark Heritage Park II Limited Partnership at December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 29, 1996 Greenville, South Carolina F-27 922 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31, 1995 ASSETS Cash: Unrestricted.............................................. $ 154,655 Restricted -- tenant security deposits.................... 143,474 $ 298,129 ----------- Accounts receivable......................................... 9,009 Cash collateral accounts (Note 2)........................... 1,263,195 Bond fund (Note 2).......................................... 212,704 Other restricted escrows.................................... 387,235 Escrow deposits for taxes and insurance..................... 141,780 Other assets................................................ 87,252 Loan costs, net of accumulated amortization of $510,321 (Note 1).................................................. 1,019,534 Investment properties (Notes 1, 2 and 3): Land...................................................... 5,308,951 Buildings and related personal property................... 36,757,328 ----------- 42,066,279 Less accumulated depreciation............................. (13,687,276) 28,379,003 ----------- ----------- $31,797,841 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 70,028 Accrued and sundry liabilities: Tenant security deposits............................... $ 142,808 Interest............................................... 2,355,072 Unearned rental collections............................ 39,036 Other.................................................. 75,530 2,612,446 ----------- Long-term debt (Note 2)................................... 36,957,711 ----------- 39,640,185 Partners' deficit: General Partners.......................................... (78,423) Limited Partners.......................................... (7,763,921) (7,842,344) ----------- ----------- $31,797,841 ===========
See accompanying notes. F-28 923 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 Revenues: Rental income............................................. $6,079,925 Other income.............................................. 193,029 ---------- 6,272,954 Expenses: Operating................................................. $ 692,714 Administrative............................................ 313,397 Interest.................................................. 2,635,984 Letter of credit fees..................................... 299,941 Depreciation and amortization............................. 1,254,087 Advertising and rental incentives......................... 71,119 Property taxes............................................ 488,219 Utilities................................................. 411,387 Management fees (Note 4).................................. 334,527 Maintenance............................................... 486,330 Ground lease (Note 3)..................................... 95,000 Insurance (Note 4)........................................ 118,881 7,201,586 ---------- ---------- Net loss.......................................... $ (928,632) ==========
See accompanying notes. F-29 924 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1995
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- ----------- ----------- Partners' deficit at December 31, 1994.............. $(69,137) $(6,844,575) $(6,913,712) Net loss.......................................... (9,286) (919,346) (928,632) -------- ----------- ----------- Partners' deficit at December 31, 1995.............. $(78,423) $(7,763,921) $(7,842,344) ======== =========== ===========
See accompanying notes. F-30 925 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1995 Operating activities Net loss.................................................. $ (928,632) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 1,123,616 Amortization........................................... 130,471 Changes in operating assets and liabilities: Restricted cash...................................... (2,257) Accounts receivable.................................. 29,997 Other assets......................................... (9,619) Escrow deposits for taxes and insurance.............. 33,275 Accounts payable..................................... (71,074) Accrued interest..................................... 561,874 Tenant security deposits............................. (1,998) Unearned rental collections.......................... (55,563) Other accrued and sundry liabilities................. 37,981 ---------- Net cash provided by operating activities......... 848,071 Investing activities Property improvements and replacements.................... (178,322) Deposits to cash collateral accounts...................... (251,942) Deposits to bond fund..................................... (295,686) Receipts from bond fund................................... 300,000 Receipts from other restricted escrows.................... 541,927 Deposits to other restricted escrows...................... (578,476) ---------- Net cash used in investing activities............. (462,499) Financing activities Payments on long-term debt.................................. (391,441) ---------- Net cash used in financing activities............. (391,441) ---------- Net decrease in cash.............................. (5,869) Cash at December 31, 1994................................... 160,524 ---------- Cash at December 31, 1995................................... $ 154,655 ========== Supplemental disclosure of cash flow information Cash paid for interest expense.............................. $2,074,110 ==========
See accompanying notes. F-31 926 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Calmark Heritage Park II Limited Partnership (formerly known as Shearson/Calmark Heritage Park II, Ltd., a California Limited Partnership) ("the Partnership"), was formed in November 1986 to acquire and operate senior citizens apartment communities located in California and Nevada. The Partnership will terminate on March 9, 2011 unless terminated sooner by vote of the Limited Partners or other dissolution. Other dissolution may occur upon the bankruptcy or dissolution of a General Partner unless the Partners elect to continue the Partnership. The General Partners of the Partnership are Heritage Park Investors, Inc., a California corporation (the Managing General Partner), Calmark Investors, Ltd., a California Limited Partnership (the Associate General Partner), and Heritage Park II, Inc., a Delaware corporation (the Lehman General Partner). Allocations to Partners Income and Losses Income from operations is allocated pro rata to the General Partners and to the Limited Partners as a class in the same ratio as cash distributions are made to such partners (see below). In the event that no cash distributions are made to the Partners during any year, income from operations shall be allocated 1% to the General Partners and 99% to the Limited Partners. Losses from operations are generally allocated 1% to the General Partners and 99% to the Limited Partners. Income from disposition or partial disposition of Partnership property and income upon termination and liquidation of the Partnership will be allocated as follows: a. To Partners with negative adjusted capital account balances (as defined), after accounting for distributions described below, in proportion to their negative adjusted capital account balances. b. Any remaining income will be allocated 5% to the Lehman General Partner, 25% to the Managing General Partner and Associate General Partner and 70% to the Limited Partners. Losses from disposition or partial disposition of the Partnership property and all losses upon the termination and liquidation of the Partnership shall be allocated as follows: a. To all Partners with positive adjusted capital balances in proportion to their adjusted capital balances. b. Any remaining losses will be allocated 1% to the General Partners and 99% to the Limited Partners. Cash Distributions Cash from operations is to be distributed, when available, not less often than quarterly and not later than ninety days after the end of each fiscal quarter of the Partnership in the following order of priority: a. 1% collectively to the Managing General Partner and the Associate General Partner and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to a 10% per annum cumulative (but not compounded) return on their adjusted interest investment (as defined). b. The remainder is allocated 25% collectively to the Managing General Partner and the Associate General Partner, 5% to the Lehman General Partner and 70% to the Limited Partners as a class. F-32 927 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) In general, any proceeds remaining after the sale of the properties and dissolution of the Partnership shall be distributed to the Partners in accordance with their capital accounts. Investment Properties During 1995, the Partnership adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The effect of adoption was not material. Depreciation Depreciation is provided by the straight-line method over the estimated lives of the investment properties and related personal property. Loan Costs Loan costs are amortized on a straight-line basis over the lives of the respective debt. Cash The Partnership considers only unrestricted cash to be cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Leases The Partnership generally leases apartment units for twelve-month terms or less. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease. Deposits are refunded when the tenant vacates the apartment if there has been no damage. Fair Value In 1995, the Partnership implemented Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments", which requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. The carrying amount of the Partnership's cash approximates fair value. The Partnership estimates the fair value of its fixed rate mortgages by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership. The carrying amounts of bonds payable approximate fair value due to frequent re-pricing (Note 2). Income Taxes Under provisions of the Internal Revenue Code and applicable state revenue and taxation codes, partnerships are generally not subject to income taxes. For tax purposes, any income or loss realized is that of the individual partners, not the Partnership. Advertising The Partnership expenses the costs of advertising as incurred. F-33 928 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. LONG-TERM DEBT Long-term debt at December 31, 1995 consists of the following: Indebtedness under three 1992 Series A Bond Issues to various housing authorities bearing interest at variable rates, secured by first deeds of trust on the Anaheim, Escondido, and Livermore properties. Interest payments to the trustee are required semi-annually; the rate is reset every seven days and is to be that which would produce a par bid if the bonds were sold on the first day of the next seven-day reset period. The average annual interest rates for 1995 ranged from 2.55% to 5.75%. Two of the bond issues mature in 2007 and one in 2022; they can be redeemed prior to maturity without penalty, subject to certain provisions........................................ $22,905,000 Mortgage notes payable to various mortgage companies bearing interest at rates ranging from 9.78% to 11.125% per annum, secured by first deeds of trust on the Villa Serena, Las Vegas and Norco properties. These notes require monthly payments of principal and interest ranging from approximately $21,000 to $50,000, with balloon payments of $5,059,160 (Las Vegas) and $2,140,414 (Norco) due in April 1996 and $3,823,999 (Villa Serena) due in November 2007... 12,402,711 Subordinated mortgage notes payable on the Anaheim, Livermore and Escondido properties. The Anaheim note in the amount of $600,000 bears interest at 10.525% and requires monthly interest payments of approximately $4,100. All unpaid interest plus the principal amount is due in 1997. The Livermore note in the amount of $100,000 bears interest at 5% per annum and the interest and principal amounts are due in 2084. The Escondido note in the amount of $950,000 bears interest at 12% per annum, with monthly payments of 25% of net cash flow as defined, applied first to unpaid interest and then to, principal; any remaining unpaid principal and interest amounts are due in 1997............................................... 1,650,000 ----------- $36,957,711 ===========
The estimated fair values of the Partnership's aggregate debt is $37,840,000, which represents a general approximation of possible value and is not necessarily indicative of the amounts the Partnership may pay in actual market transactions. The Partnership is required to make semi-annual payments to a Bond Fund which can be used to redeem the 1992 Series A Bond Issues. Under the requirements of the reimbursement agreement, the Partnership is required to make payments of $300,000 (1996), $315,000 (1997), $335,000 (1998), $365,000 (1999) and $390,000 (2000) to the Bond Fund which is held by the Trustee, First Interstate Bank. During 1995, the Partnership redeemed bonds in the amount of $300,000 with funds held in the Bond Fund. The Partnership has irrevocable letters of credit with First Interstate Bank in the amounts of $8,979,959 (Anaheim), $7,546,850 (Escondido) and $7,668,410 (Livermore), respectively. These letters of credit are additional security for the 1992 Series A Bond Issues, and are secured by second deeds of trust on the Anaheim, Escondido and Livermore properties. The Partnership is required to pay monthly servicing fees of F-34 929 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) approximately 1% per annum, based on the outstanding amounts. The Partnership also has a standby letter of credit in the amount of $8,979,959 which is additional security for the Anaheim letter of credit. The Partnership is required to fund a Cash Collateral Account and Debt Service Reserve Account, based on monthly net cash flow as defined, from these three properties, up to a maxi mum of $1,200,000 and $400,000, respectively. The Debt Service Reserve Account is to be funded from monthly net cash flow after the Cash Collateral Account has been fully funded. These Accounts serve as additional collateral for the bonds. At December 31, 1995, the balances in the Cash Collateral Account and Debt Service Reserve were $1,153,788 and $-0-, respectively. The Partnership has a money market account which is restricted as additional collateral for the Las Vegas mortgage note payable. The balance in this cash collateral account at December 31, 1995 was $109,407. The debt encumbering Las Vegas Apartments matures in April 1996. The Partnership is currently negotiating a sale of the property with a potential buyer, however, there is no assurance that the negotiations will ultimately be successful. In January 1995, the Partnership went into default on the mortgage note payable for Norco due to the Partnership only paying one-half of the required monthly mortgage payment. The Partner ship made one-half of the required monthly mortgage payment through April 1995, after which the Partnership made no payments. As a result of the default, the Partnership is incurring default interest on the mortgage note balance at the time of the event of default at 13.125%, or 2% above the stated rate. In December 1995, the rights of the mortgage note payable were assigned to Praedium Chesapeake, LLC ("Praedium"). In January 1996, Praedium served a notice of default and entered into an agreement with the Partnership to execute a non-contested foreclosure on the Norco property. The agreement provides for monthly excess cash flow payments until the fore closure is complete. The balance outstanding on this mortgage note payable was $2,158,334 at December 31, 1995. Principal maturities of long-term debt at December 31, 1995 are as follows: 1996 (including debt in default of $2,158,344)........ $ 7,290,464 1997.................................................. 1,619,513 1998.................................................. 76,624 1999.................................................. 84,463 2000.................................................. 93,104 Thereafter............................................ 27,793,543 ----------- $36,957,711 ===========
3. GROUND LEASES The Livermore property is subject to a ground lease that expires in November 2084. The lease provides for rental payments of $5,000 per month. In addition, the Partnership is required to pay annually the difference between the minimum monthly rent described above and 4 1/2% of gross rental income from the Livermore property for the preceding 12 months. The Norco property is subject to a ground lease which expires in June 2051. The lease provides for annual rent of $35,000 through June 1996 at which time the rent is subject to an increase or decrease based on changes in the consumer price index within certain limitations. The rent is again subject to adjustment on every fifth anniversary date thereafter, through the year 2051. F-35 930 CALMARK HERITAGE PARK II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) During 1995, the Partnership ceased making payments on the Norco ground lease, which constitutes an event of default. Ground lease payments totaling $20,417 are accrued and included in other liabilities at December 31, 1995. Future minimum lease payments at December 31, 1995 are summarized as follows: 1996................................................... $ 95,000 1997................................................... 95,000 1998................................................... 95,000 1999................................................... 95,000 2000................................................... 95,000 Thereafter............................................. 6,825,000 ---------- $7,300,000 ==========
4. TRANSACTIONS WITH AFFILIATED PARTIES An affiliate of Insignia Financial Group, Inc. ("Insignia"), owns the capital stock of the Managing General Partner with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1995: Property management fees................................ $334,527 Reimbursement for services of affiliates................ 46,404
The Partnership insures its properties under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the Managing General Partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations is not significant. NOTE 5 -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-36 931 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 932 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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-2 933 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 September , 1998 A-3 934 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CATAWBA CLUB 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 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 935 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-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 Catawba Club Associates, 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71 YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72
i 936
PAGE ---- Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-73 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Balance Sheet Data......................... S-74 Statement of Operations Data............... S-74 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77
PAGE ---- Distributions and Transfers of Units......... S-77 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
ii 937 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 Catawba Club Associates, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). S-1 938 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. - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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
S-2 939 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. - 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 $ 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 distributions of $ 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 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. S-3 940 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. 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-4 941 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 100% of 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? 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: 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-5 942 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-6 943 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. 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. 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 5 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. 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 S-7 944 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 945 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 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 S-9 946 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 947 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, 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. 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 S-11 948 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not any own limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 has required funding from its partners. Continuation of its operations is dependent on additional funding from partners or from other sources. 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 S-12 949 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. 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." S-13 950 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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-14 951 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 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 S-15 952 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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-16 953 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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............................ $
S-17 954 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-1 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 is not subject to such limitations. 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 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 generated in that capacity. The property manager received management fees of $56,001 in 1996, $60,499 in 1997 and $28,649 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. S-18 955 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 Your Partnership and its Property. Catawba Club Associates, L.P. is a Delaware limited partnership which was formed on May 28, 1985 for the purpose of owning and operating a single apartment property located in Columbus, Ohio, known as "Catawba Club Apartments". In 1985, it completed a private placement of units that raised net proceeds of approximately $1,996,400. Catawba Club Apartments consists of 186 apartment units. Your partnership has no employees. Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2008, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,661,438, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $130,106, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-19 956 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 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-20 957
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 ----------- ------------ 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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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-21 958 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 959
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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-23 960 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 961 SUMMARY FINANCIAL INFORMATION OF CATAWBA CLUB ASSOCIATES, L.P. The summary financial information of Catawba Club Associates, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Catawba Club Associates, L.P. 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 of Your Partnership" included herein. See "Index to Financial Statements." CATAWBA CLUB ASSOCIATES, L.P.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total revenues................. $ 576,570 $ 601,406 $ 1,195,681 $ 1,137,701 $ 1,081,245 $ 1,088,583 $ 1,064,380 Net Income/(Loss).............. 14,550 105,944 38,586 206 (122,166) (209,062) (267,601) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................. 1,746,833 1,697,460 1,765,989 1,715,436 1,736,084 1,798,934 2,044,623 Total assets................... 2,119,851 2,115,787 2,160,764 2,110,327 2,150,860 2,268,327 2,468,921 Mortgage notes payable, including accrued interest... 4,355,958 4,125,045 4,096,685 4,179,525 3,841,655 3,910,145 3,972,911 Partners' capital/(deficit).... $(2,413,708) $(2,360,900) $(2,428,258) $(2,466,844) $(2,467,050) $(2,344,884) $(2,135,822)
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 YOUR 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 0
S-25 962 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. 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 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 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. S-26 963 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 Code. 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 therefore 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 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. 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 S-27 964 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 $ 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 partnerships 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 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. 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. S-28 965 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 966 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 has required funding from its partners. Continuation of its operations is dependent on additional funding from partners or from other sources. 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. S-30 967 - 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 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 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-31 968 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 969 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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-33 970 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. 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. S-34 971 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." 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. 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. S-35 972 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, (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 9:00 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 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, Denver, Colorado time. S-36 973 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 974 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. 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, which change, 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 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 S-38 975 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 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 S-39 976 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 977 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. 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. 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-41 978 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-42 979 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 payment. 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 OP Units and any such S-43 980 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-44 981 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-45 982 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-46 983 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-47 984 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-48 985 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-49 986 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 987 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-51 988 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 989 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value, 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-53 990 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 991 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 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, a third party expert, 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 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 $ 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 partnerships 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-55 992 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-56 993 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. 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-57 994 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-58 995 performed a site inspection 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 September 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 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 property was 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 S-59 996 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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 S-60 997 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-61 998 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Catawba Club Apartments. 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 Available 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 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 purchase, hold, The purpose of the AIMCO Operating Partnership is to lease, manage and operate your partnership's property. conduct any business that may be lawfully conducted by Subject to restrictions contained in your partnership's a limited partnership organized pursuant to the agreement of limited partnership, your partnership may Delaware Revised Uniform Limited Partnership Act (as perform all acts necessary or appropriate in connection amended from time to time, or any successor to such therewith and reasonably related thereto, including statute) (the "Delaware Limited Partnership Act"), 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-62 999 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 units for cash and time to the limited partners and to other persons, and notes 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. 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 contracts to be entered into with the funds or other assets to its subsidiaries or other general partner and its affiliates and the compensation persons in which it has an equity investment, and such to be paid under such contracts. In addition, the persons may borrow funds from the AIMCO Operating general partner may loan your partnership such Partnership, on terms and conditions established in the additional sums as the general partners deems sole and absolute discretion of the general partner. To appropriate and necessary for the conduct of your the extent consistent with the business purpose of the partnership's business. Such loans by the general AIMCO Operating Partnership and the permitted partner or its affiliates will be upon such terms and activities of the general partner, the AIMCO Operating for such maturities as the general partner deems Partnership may transfer assets to joint ventures, reasonable and will bear interest at a rate the greater limited liability companies, partnerships, of 2 1/2% over the base rate then being charged by corporations, business trusts or other business Third National Bank in Nashville, Tennessee or the entities in which it is or thereby becomes a actual cost to such lender to borrow such funds and the participant upon such terms and subject to such terms thereof as to security and other charges or fees conditions consistent with the AIMCO Operating Part- will be at least as favorable to your partnership as nership Agreement and applicable law as the general those negotiated by unaffiliated lenders on com- partner, in its sole and absolute discretion, believes parable loans for the same purpose in the same locale. 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 in the ordinary course of business and restrictions on borrowings, and the general partner has in connection with certain loans specified in your full power and authority to borrow money on behalf of partnership's agreement of limited partnership, which the AIMCO Operating Partnership. The AIMCO Operating includes loans secured by your partnership's property. Partnership has credit agreements that restrict, among However, except for such loans specified in your part- other things, its ability to incur indebtedness. See nership's agreement of limited partnership, the limited "Risk Factors -- Risks of Significant Indebtedness" in partners owning 51% of the outstanding units must the accompanying Prospectus. approve the mortgaging of all or substantially all of the assets of your partnership and, in any case, the general partners may not incur any indebtedness pursuant to a non-recourse loan if the creditor will have or acquire, at any time, as a result of the making of the loan, any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
S-63 1000 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 the limited partners to have access to the with a statement of the purpose of such demand and at current list of the names and addresses of all limited such OP Unitholder's own expense, to obtain a current partner at the principal office of the general partner list of the name and last known business, residence or in Tennessee at all reasonable times. mailing address of the general partner and each other OP Unitholder.
Management Control The management and control of your partnership and its All management powers over the business and affairs of business and affairs rests exclusively with the general the AIMCO Operating Partnership are vested in AIMCO-GP, partners, which have all the rights and power which may Inc., which is the general partner. No OP Unitholder be possessed by general partners pursuant to applicable has any right to participate in or exercise control or law or are necessary, advisable or convenient to the management power over the business and affairs of the discharge of its duties under your partnership's AIMCO Operating Partnership. The OP Unitholders have agreement of limited partnership. Limited partners may the right to vote on certain matters described under not take part in or interfere with conduct or control "Comparison of Ownership of Your Units and AIMCO OP of the business of your partnership and have no right Units -- Voting Rights" below. The general partner may or authority to act for or bind your partnership in any not be removed by the OP Unitholders with or without manner, except that limited partners may exercise the cause. voting and other rights provided in your partnership's agreement of limited partnership and under applicable 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, the general partner of your partnership is the AIMCO Operating Partnership Agreement, the general not liable to your partnership or any limited partner partner is not liable to the AIMCO Operating for any acts or failures to do any act performed by it Partnership for losses sustained, liabilities incurred in the absence of its willful malfeasance or gross or benefits not derived as a result of errors in negligence. Your partnership's agreement of limited judgment or mistakes of fact or law of any act or partnership does not provide for indemnification of the omission if the general partner acted in good faith. general partner by your partnership for any acts or The AIMCO Operating Partnership Agreement provides for omissions performed by it. indemnification of AIMCO, or any director or officer of AIMCO (in its capacity as the previous general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware 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
S-64 1001 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 for cause after giving notice to such general affairs of the AIMCO Operating Partnership. The general partner upon a vote of the limited partners owning at partner may not be removed as general partner of the least 67% of the outstanding units. A general partner AIMCO Operating Partnership by the OP Unitholders with may resign with the approval of the limited partners or without cause. Under the AIMCO Operating Partnership owning at least 51% of the outstanding units upon the Agreement, the general partner may, in its sole giving of notice to any remaining general partner and discretion, prevent a transferee of an OP Unit from the limited partners. All the limited partners must becoming a substituted limited partner pursuant to the approve the election of a substitute general partner. A AIMCO Operating Partnership Agreement. The general limited partner may not transfer his interests without partner may exercise this right of approval to deter, the written consent of the general partners which may delay or hamper attempts by persons to acquire a be withheld at the sole discretion of the general controlling interest in the AIMCO Operating Partner- 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 to add in the AIMCO Operating Partnership Agreement, whereby representations, duties or obligations of the general the general partner may, without the consent of the OP partner or its affiliates or surrender any right or Unitholders, amend the AIMCO Operating Partnership power granted to the general partners or their Agreement, amendments to the AIMCO Operating affiliates in your partnership's agreement of limited Partnership Agreement require the consent of the partnership for the benefit of the limited partners; to holders of a majority of the outstanding Common OP cure any ambiguity; to correct or supplement any Units, excluding AIMCO and certain other limited provision which may be inconsistent with any other exclusions (a "Majority in Interest"). Amendments to provision provided that the general partner receive an the AIMCO Operating Partnership Agreement may be opinion of counsel that such amendment does not proposed by the general partner or by holders of a adversely affect the rights of the limited partners; Majority in Interest. Following such proposal, the and to admit additional or substitute limited partners. general partner will submit any proposed amendment to Any other amendments to your partnership's agreement of the OP Unitholders. The general partner will seek the limited partnership must be approved by the limited written consent of the OP Unitholders on the proposed partners owning 67% of the units. The general partner amendment or will call a meeting to vote thereon. See must submit a written statement of the proposed "Description of OP Units -- Amendment of the AIMCO amendment together with their recommendation as to such Operating Partnership Agreement" in the accompanying proposed amendment. For the purposes of obtaining the Prospectus. consent of the limited partners, the general partner may require responses within a specified time, which may not be less than 30 days, and failure to respond in such time will constitute a vote which is consistent with the general partner's recommendation with respect to such proposal.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses is set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fees for its services as general partner. capacity as general partner of the AIMCO Operating However, the general partner or certain of its Partnership. In addition, the AIMCO Operating Part- affiliates may be entitled to compensation for services nership is responsible for all expenses incurred rendered outside of its capacity as general partner. 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-65 1002 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, except as provided under applicable law, a negligence, no OP Unitholder has personal liability for limited partner is not bound by or personally liable the AIMCO Operating Partnership's debts and for the expenses, liabilities or obligations of your obligations, and liability of the OP Unitholders for partnership in excess of such limited partners' capital the AIMCO Operating Partnership's debts and obligations contribution, including any deferred payment to be made is generally limited to the amount of their invest- by such limited partner for its units, and any ment in the AIMCO Operating Partnership. However, the mandatory assessments provided for in your limitations on the liability of limited partners for partnership's agreement of limited partnership which the obligations of a limited partnership have not been may be levied against those limited partners who do not clearly established in some states. If it were pay for issued units entirely in cash at the time of determined that the AIMCO Operating Partnership had issuance. 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 manage and partnership agreement, Delaware law generally requires control your partnership, and its business and affairs a general partner of a Delaware limited partnership to to the best of its abilities and must use its best adhere to fiduciary duty standards under which it owes efforts to carry out the business of your partnership. its limited partners the highest duties of good faith, The general partner must devote itself to the business fairness and loyalty and which generally prohibit such of your partnership to the extent that it, in its general partner from taking any action or engaging in discretion, deems necessary for the efficient carrying any transaction as to which it has a conflict of on thereof. The general partner must act as a interest. The AIMCO Operating Partnership Agreement fiduciaries with respect to the safekeeping and use of expressly authorizes the general partner to enter into, the funds and assets of your partnership. However, the on behalf of the AIMCO Operating Partnership, a right general partner may engage in whatever activities it of first opportunity arrangement and other conflict chooses, whether or not it is competitive with your avoidance agreements with various affiliates of the partnership, without having or incurring any obligation AIMCO Operating Partnership and the general partner, on to offer any interest in such activities to your such terms as the general partner, in its sole and partnership or any limited partner. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-66 1003 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, the vote of applicable law or in the AIMCO ship Agreement, the OP Unitholders the limited partners owning 51% of Operating Partnership Agreement, have voting rights only with the outstanding units is necessary the holders of the Preferred OP respect to certain limited matters to change the nature of your Units will have the same voting such as certain amendments and partnership's business and approve rights as holders of the Common OP termination of the AIMCO Operating or disapprove the sale of all or Units. See "Description of OP Partnership Agreement and certain substantially all of the assets of Units" in the accompanying transactions such as the your partnership. The consent of Prospectus. So long as any institution of bankruptcy the holders of at least 67% of the Preferred OP Units are outstand- proceedings, an assignment for the outstanding units is required to ing, in addition to any other vote benefit of creditors and certain remove a general partner, amend or consent of partners required by transfers by the general partner of your partnership's agreement of law or by the AIMCO Operating its interest in the AIMCO Operating limited partnership Partnership Agree- Part-
S-67 1004 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS and to dissolve your partnership ment, the affirmative vote or nership or the admission of a before its term expires. All consent of holders of at least 50% successor general partner. limited partners must approve the of the outstanding Preferred OP election of a substitute general Units will be necessary for Under the AIMCO Operating Partner- 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 the your partnership OP Units that materially and exchange or other disposition of by retiring when there are no adversely affects the rights or any assets of the AIMCO Operating remaining general partners unless, preferences of the holders of the Partnership (including, but not within ninety days, all of the Preferred OP Units. The creation or limited to, the exercise or grant limited partners elect a new issuance of any class or series of of any conversion, option, general partner to continue the partnership units, including, privilege or subscription right or business of your partnership, in without limitation, any partner- any other right available in reconstituted form if necessary. 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 the Available Cash $ per Preferred OP Unit; tribute quarterly all, or such Flow will be made in quarterly provided, however, that at any time portion as the general partner may installments within 45 days after and from time to time on or after in its sole and absolute discretion the end of such quarter or at such the fifth anniversary of the issue determine, of Available Cash (as time or times as the general date of the Preferred OP Units, the defined in the AIMCO Operating partner deems practical. The AIMCO Operating Partnership may Partnership Agreement) generated by 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-68 1005 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 and such Preferred OP Units and the OP Units. The AIMCO Operating Part- transferee will become a Preferred OP Units are not listed nership Agreement restricts the substituted limited partner if: (1) on any securities exchange. The transferability of the OP Units. the transfer is not in respect of Preferred OP Units are subject to Until the expiration of one year fractional units, except in limited restrictions on transfer as set from the date on which an OP circumstances, (2) the assignor and forth in the AIMCO Operating Unitholder acquired OP Units, assignee execute, acknowledge and Partnership Agreement. subject to certain exceptions, such deliver instruments of transfer OP Unitholder may not transfer all satisfactory to the general Pursuant to the AIMCO Operating or any portion of its OP Units to partner, (3) the transferor pays a Partnership Agreement, until the any transferee without the consent transfer fee, (4) the general expiration of one year from the of the general partner, which partner consents, which consent date on which a holder of Preferred consent may be withheld in its sole will be withheld if, among other OP Units acquired Preferred OP and absolute discretion. After the reasons, the transfer violates Units, subject to certain expiration of one year, such OP Federal or state securities laws or exceptions, such holder of Unitholder has the right to results in the termination of your Preferred OP Units may not transfer transfer all or any portion of its partnership for tax purposes and all or any portion of its Pre- OP Units to any person, subject to (5) the assignor and assignee have ferred OP Units to any transferee the satisfaction of certain complied with such other conditions without the consent of the general conditions specified in the AIMCO as set forth in your partner- partner, which consent may be Operating Partnership Agreement, ship's agreement of limited withheld in its sole and absolute including the general partner's partnership. discretion. After the expiration of right of first refusal. See one year, such holders of Preferred "Description of OP Units -- There are no redemption rights OP Units has the right to transfer Transfers and Withdrawals" in the associated with your units. all or any portion of its Preferred accompanying Prospectus. OP Units to any person, subject to the satisfaction of
S-69 1006 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-70 1007 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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 own 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 from your partnership but may receive reimbursement for expenses generated in such capacity. The property manager received management fees of $56,001 in 1996, $60,499 in 1997 and $28,649 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-71 1008 YOUR PARTNERSHIP GENERAL Catawba Club Associates, L.P. is a Delaware limited partnership which raised net proceeds of approximately $1,996,400 in 1985 through a private offering. The promoter for the private offering of your partnership was Jacques-Miller. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 45 limited partners of your partnership and a total of 30.5 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 28, 1985 for the purpose of owning and operating a single apartment property located in Columbus, Ohio, known as "Catawba Club Apartments." Your partnership's property consists of 186 apartment units. There are 51 one-bedroom apartments, 119 two-bedroom apartments and 16 three-bedroom apartments. The total rentable square footage of your partnership's property is 178,246 square feet. Your partnership's property had an average occupancy rate of approximately 87.63% in 1996 and 87.63% in 1997. The average annual rent per apartment unit is approximately $6,029. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $56,001, $60,499 and $28,649, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2008 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-72 1009 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,661,438, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $130,106, on the same terms as the first mortgage note. A third unsecured promissory note payable to Jacques-Miller Income Fund II matured in November 1997, which bears interest at a rate of 12.5%. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 1010 Below is selected financial information for Catawba Club Associates, L.P. taken from the financial statements described above. The 1994 and 1993 amounts have been derived from the audited financial statements which are not included in the Prospectus Supplement. See "Index to Financial Statements."
CATAWBA CLUB ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 50,846 $ 66,396 $ 15,545 $ 37,698 $ 71,242 $ 85,724 $ 85,828 Land & Building.............. 5,250,976 5,083,926 5,211,293 5,043,062 4,955,008 4,820,400 4,789,176 Accumulated Depreciation..... (3,504,143) (3,386,465) (3,445,304) (3,327,626) (3,218,924) (3,021,466) (2,744,553) Other Assets................. 322,172 351,931 379,230 357,193 343,534 383,669 338,470 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 2,119,851 $ 2,115,787 $ 2,160,764 $ 2,110,327 $ 2,150,860 $ 2,268,327 $ 2,468,921 =========== =========== =========== =========== =========== =========== =========== LIABILITIES AND PARTNERS' DEFICIT Mortgage & Accrued Interest................... $ 4,355,958 $ 4,125,045 $ 4,096,685 $ 4,179,525 $ 4,254,261 $ 3,910,145 $ 3,972,911 Other Liabilities............ 177,601 351,642 492,337 397,646 363,649 703,066 631,832 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 4,533,559 4,476,687 4,589,022 4,577,171 4,617,910 4,613,211 4,604,743 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $(2,413,708) $(2,360,900) $(2,428,258) $(2,466,844) $(2,467,050) $(2,344,884) $(2,135,822) =========== =========== =========== =========== =========== =========== ===========
CATAWBA CLUB ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- STATEMENT OF OPERATIONS DATA Revenues: Rental Revenue............ $ 544,883 $ 562,195 $ 1,129,839 $ 1,061,661 $ 997,400 $ 1,020,689 $ 992,938 Other Income.............. 31,687 39,211 65,842 76,040 83,845 67,894 71,442 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue...... $ 576,570 $ 601,406 $ 1,195,681 $ 1,137,701 $ 1,081,245 $ 1,088,583 $ 1,064,380 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Expenses: Operating Expenses........ $ 284,781 $ 217,629 $ 511,450 $ 490,711 $ 472,940 $ 475,033 $ 480,434 General & Administrative.......... 22,508 18,773 41,726 42,772 41,487 35,814 56,642 Depreciation.............. 58,839 58,839 117,678 108,702 197,458 289,499 283,346 Interest Expense.......... 145,388 149,676 389,906 398,035 403,893 410,332 423,970 Property Taxes............ 50,504 50,545 96,335 97,275 87,633 86,967 87,589 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Expenses..... 562,020 495,462 1,157,095 1,137,495 1,203,411 1,297,645 1,331,981 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income......... $ 14,550 $ 105,944 $ 38,586 $ 206 $ (122,166) $ (209,062) $ (267,601) =========== =========== =========== =========== =========== =========== ===========
S-74 1011 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $14,550 for the six months ended June 30, 1998, compared to $105,944 for the six months ended June 30, 1997. The decrease in net income of $91,394, or 86.27% was primarily the result of a decrease in rental revenues and an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $576,570 for the six months ended June 30, 1998, compared to $601,406 for the six months ended June 30, 1997, a decrease of $24,836, or 4.13%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $284,781 for the six months ended June 30, 1998, compared to $217,629 for the six months ended June 30, 1997, an increase of $67,152 or 30.86%. The increase is due primarily to an increase in maintenance expenses and advertising costs to improve the curb appeal of the property. Management expenses totaled $28,649 for the six months ended June 30, 1998, compared to $31,186 for the six months ended June 30, 1997, a decrease of $2,537, or 8.14%. The decrease resulted from a decrease in rental revenues. General and Administrative Expenses General and administrative expenses totaled $22,508 for the six months ended June 30, 1998 compared to $18,773 for the six months ended June 30, 1997, an increase of $3,735 or 19.90%. The increase is primarily due to the timing of asset management expense. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $145,388 for the six months ended June 30, 1998, compared to $149,676 for the six months ended June 30, 1997, a decrease of $4,288, or 2.86%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $38,586 for the year ended December 31, 1997, compared to $206 for the year ended December 31, 1996. The increase in net income of $38,380, was primarily the result of an increase in rental revenues offset by an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. S-75 1012 Revenues Rental and other property revenues from the partnership's property totaled $1,195,681 for the year ended December 31, 1997, compared to $1,137,701 for the year ended December 31, 1996, an increase of $57,980, or 5.10%. The increase in revenues is primarily due to an increase in average occupancy levels in 1997. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $511,450 for the year ended December 31, 1997, compared to $490,711 for the year ended December 31, 1996, an increase of $20,739 or 4.23%. Management expenses totaled $60,499 for the year ended December 31, 1997, compared to $56,001 for the year ended December 31, 1996, an increase of $4,498, or 8.03%. The increase resulted from an increase in rental revenues. General and Administrative Expenses General and administrative expenses totaled $41,726 for the year ended December 31, 1997 compared to $42,772 for the year ended December 31, 1996, a decrease of $1,046 or 2.45%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $389,906 for the year ended December 31, 1997, compared to $398,035 for the year ended December 31, 1996, a decrease of $8,129, or 2.04%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $206 for the year ended December 31, 1996, compared to a net loss of $122,166 for the year ended December 31, 1995. The increase in net income of $122,372 was primarily the result of increased revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,137,701 for the year ended December 31, 1996, compared to $1,081,245 for the year ended December 31, 1995, an increase of $56,456, or 5.22%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $490,711 for the year ended December 31, 1996, compared to $472,940 for the year ended December 31, 1995, an increase of $17,771 or 3.76%. Management expenses totaled $56,001 for the year ended December 31, 1996, compared to $54,303 for the year ended December 31, 1995, an increase of $1,698, or 3.13%. General and Administrative Expenses General and administrative expenses totaled $42,772 for the year ended December 31, 1996 compared to $41,487 for the year ended December 31, 1995, an increase of $1,285 or 3.10%. S-76 1013 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $398,035 for the year ended December 31, 1996, compared to $403,893 for the year ended December 31, 1995, a decrease of $5,858, or 1.45%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $50,846 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. The Partnership had debt that has matured in 1997 and due to Jacques Miller Income Fund II totaling $413,606. This amount remains unpaid and the Company may either refinance or negotiate the purchase of this note. However, there can be no assurance that such a refinancing or negotiation will occur. 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 to your partnership or any limited partner for any acts or failures to do any act performed by it of them in the absence of its willful malfeasance or gross negligence. 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 owned by AIMCO. See "Conflicts of Interest". Your partnership's agreement of limited partnership does not provide for indemnification of the general partner by your partnership for any acts or omissions performed by them. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $39,928.
YEAR DISTRIBUTIONS - ---- ------------- 1995........................................................ $38,456 1996........................................................ $33,620 1997........................................................ $33,815
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions S-77 1014 (excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
PERCENTAGE OF NUMBER OF UNITS TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------- ------------ 1994.................................. 0.0 0.00% 0 1995.................................. 0.0 0.00% 0 1996.................................. 0.0 0.00% 0 1997.................................. 0.0 0.00% 0 1998 (through June 30)................ 0.75 2.34% 2
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR MANAGEMENT FEES - ---- --------------- 1994........................................................ $28,044 1995........................................................ $38,456 1996........................................................ $33,620 1997........................................................ $33,815 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $54,303 1996........................................... $56,001 1997........................................... $60,499 1998 (through June 30)......................... $28,649
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 company paid to the property manager or AIMCO and its affiliates. S-78 1015 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Catawba Club Associates, L.P. at December 31, 1997 and 1996, appearing in this Prospectus Supplement have been audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The auditors' report dated February 23, 1998 refers to the fact that the partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in the related footnotes. The financial statements do not include any adjustments that might result from the outcome of that uncertainty. S-79 1016 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-10 Notes to Financial Statements............................... F-11 Independent Auditors' Report................................ F-15 Balance Sheets as of December 31, 1996 and 1995............. F-16 Statements of Operation and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995................ F-17 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-18 Notes to Financial Statements............................... F-19 Independent Auditors' Report................................ F-23 Balance Sheets as of December 31, 1995 and 1994............. F-24 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1995 and 1994............ F-25 Statements of Cash Flows for the years ended December 31, 1995 and 1994............................................. F-26 Notes to Financial Statements............................... F-27
F-1 1017 CATAWBA CLUB ASSOCIATES, LIMITED CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 50,846 Receivables and Deposits.................................... 56,799 Restricted Escrows.......................................... 202,492 Other Assets................................................ 62,881 Investment Property Land...................................................... $ 329,875 Building and related personal property.................... 4,921,101 ----------- 5,250,976 Less: Accumulated Depreciation............................ (3,504,143) 1,746,833 ----------- Total Assets:..................................... $ 2,119,851 =========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ 80,912 Other Accrued Liabilities................................... 26,393 Property Taxes Payable...................................... 50,504 Accrued Interest Payable.................................... 304,886 Tenant Security Deposits.................................... 19,792 Notes Payable............................................... 4,051,072 Partners' Deficit........................................... (2,413,708) ----------- Total Liabilities and Partners' Deficit........... $ 2,119,851 ===========
See notes to interim financial statements F-2 1018 CATAWBA CLUB ASSOCIATES, LIMITED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED ------------------- JUNE 30, JUNE 30, 1998 1997 -------- -------- Revenues: Rental Income............................................. $544,883 $562,195 Other Income.............................................. 31,687 39,211 -------- -------- Total Revenues:................................... 576,570 601,406 Expenses: Operating Expenses........................................ 284,781 217,629 General and Administrative Expenses....................... 22,508 18,773 Depreciation Expense...................................... 58,839 58,839 Interest Expense.......................................... 145,388 149,676 Property Tax Expense...................................... 50,504 50,545 -------- -------- Total Expenses:................................... 562,020 495,462 -------- -------- Net Income........................................ $ 14,550 $105,944 ======== ========
See notes to interim financial statements F-3 1019 CATAWBA CLUB ASSOCIATES, LIMITED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) JUNE 30, 1998 AND 1997
SIX MONTHS ENDED ------------------- JUNE 30, JUNE 30, 1998 1997 -------- -------- Operating Activities: Net Income (loss)......................................... $ 14,550 $105,944 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 77,547 58,839 Changes in accounts: Receivables and deposits and other assets............ 55,973 (5,047) Accounts Payable and accrued expenses................ 25,788 351 Other Liabilities.................................... (35,638) (46,355) -------- -------- Net cash provided by (used in) operating activities....................................... 138,220 113,732 -------- -------- Investing Activities: Property improvements and replacements.................... (39,683) (40,864) Net (increase)/decrease in restricted escrows............. (4,468) 10,310 -------- -------- Net cash provided by (used in) investing activities....................................... (44,151) (30,554) -------- -------- Financing Activities: Payments on mortgage...................................... (58,768) (54,480) -------- -------- Net cash provided by (used in) financing activities....................................... (58,768) (54,480) -------- -------- Net increase (decrease) in cash and cash equivalents...................................... 35,301 28,698 Cash and cash equivalents at beginning of year.............. 15,545 37,698 -------- -------- Cash and cash equivalents at end of period.................. $ 50,846 $ 66,396 ======== ========
See notes to interim financial statements F-4 1020 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Catawba Club Associates, Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 1021 CATAWBA CLUB ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 1022 INDEPENDENT AUDITORS' REPORT General Partners Catawba Club Associates, Limited: We have audited the accompanying balance sheets of Catawba Club Associates, Limited as of December 31, 1997 and 1996 and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Catawba Club Associates, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note E to the financial statements, the Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note E. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 23, 1998 F-7 1023 CATAWBA CLUB ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 15,545 $ 37,698 Receivables and deposits.................................... 109,356 74,817 Restricted escrows (Note B)................................. 198,024 204,220 Other assets................................................ 71,850 78,156 Investment properties (Note C): Land...................................................... 300,000 300,000 Buildings and related personal property................... 4,911,293 4,743,062 ----------- ----------- 5,211,293 5,043,062 Less accumulated depreciation............................. (3,445,304) (3,327,626) ----------- ----------- 1,765,989 1,715,436 ----------- ----------- $ 2,160,764 $ 2,110,327 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 67,812 $ 14,070 Tenant security deposit liabilities....................... 22,759 27,395 Accrued taxes............................................. 96,198 96,276 Other liabilities (Note C)................................ 305,568 259,905 Notes payable (Note C).................................... 4,096,685 4,179,525 Partners' deficit........................................... (2,428,258) (2,466,844) ----------- ----------- $ 2,160,764 $ 2,110,327 =========== ===========
See Accompanying Notes to Financial Statements F-8 1024 CATAWBA CLUB ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 1,129,839 $ 1,061,661 Other income.............................................. 65,842 76,040 ----------- ----------- Total revenues.................................... 1,195,681 1,137,701 ----------- ----------- Expenses: Operating (Note D)........................................ 511,450 490,711 General and administrative (Note D)....................... 41,726 42,772 Depreciation.............................................. 117,678 108,702 Interest.................................................. 389,906 398,035 Property taxes............................................ 96,335 97,275 ----------- ----------- Total expenses.................................... 1,157,095 1,137,495 ----------- ----------- Net income........................................ 38,586 206 Partners' deficit at beginning of year...................... (2,466,844) (2,467,050) ----------- ----------- Partners' deficit at end of year............................ $(2,428,258) $(2,466,844) =========== ===========
See Accompanying Notes to Financial Statements F-9 1025 CATAWBA CLUB ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash flows from operating activities: Net income................................................ $ 38,586 $ 206 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 117,678 108,702 Amortization of discounts and loan costs............... 41,433 41,433 Change in accounts: Receivables and deposits............................. (34,539) (3,596) Other assets......................................... (6,904) -- Accounts payable..................................... 53,742 (32,408) Tenant security deposit liabilities.................. (4,636) 3,884 Accrued taxes........................................ (78) 9,660 Other liabilities.................................... 45,663 52,861 --------- --------- Net cash provided by operating activities......... 250,945 180,742 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (168,231) (88,054) Deposits to restricted escrows............................ (8,139) (8,129) Receipts from restricted escrows.......................... 14,335 8,367 --------- --------- Net cash used in investing activities............. (162,035) (87,816) --------- --------- Cash flows from financing activities: Payments on notes payable................................. (111,063) (102,959) --------- --------- Net cash used in financing activities............. (111,063) (102,959) --------- --------- Net decrease in cash and cash equivalents......... (22,153) (10,033) Cash and cash equivalents at beginning of year.............. 37,698 47,731 --------- --------- Cash and cash equivalents at end of year.................... $ 15,545 $ 37,698 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 297,249 $ 305,353 ========= =========
See Accompanying Notes to Financial Statements F-10 1026 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Catawba Club Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated May 28, 1985. The Partnership owns and operates a 186 unit apartment complex, Catawba Club Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets as depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $64,946 and $78,156, respectively, which are amortized over the term of the related borrowing. Deferred loan costs are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-11 1027 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in calendar year 1997 and any excess funds were returned for property operations................................................ $ -- $ 14,335 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 198,024 189,885 -------- -------- $198,024 $204,220 ======== ========
NOTE C -- NOTES PAYABLE Notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $33,202, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,720,207 $3,831,270 Second mortgage note payable in interest only monthly installments of $824, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 130,106 130,106 Unsecured 12.5% promissory note payable to the Jacques-Miller Income Fund II, an affiliate, matured November 1997; monthly payments of interest only and payments of excess cash flows in February of each year as defined in the note agreement............................. 412,606 412,606 ---------- ---------- Principal balance at year end............................... 4,262,919 4,373,982 Less unamortized discount................................... (166,234) (194,457) ---------- ---------- $4,096,685 $4,179,525 ========== ==========
Accrued interest on the note payable to the Jacques-Miller Income Fund II ("JMIF II"), which is included in other liabilities, was $266,905 and $215,329 at December 31, 1997 and 1996, respectively. Management is currently attempting to refinance the Partnership's unsecured note in order to obtain the funds necessary to satisfy the note payable to Jacques-Miller Income Fund II. The refinancing is expected to occur during the second quarter of 1998; however, there is not assurance that such a refinancing will occur. F-12 1028 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Scheduled principal payments of the notes during the years subsequent to December 31, 1997, including $412,606 in 1998 for the JMIF II debt, which matured in 1997, are as follows: 1998..................................................... $ 532,410 1999..................................................... 129,234 2000..................................................... 139,405 2001..................................................... 150,376 2002..................................................... 3,311,494 ---------- $4,262,919 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates, in addition to those disclosed in Note C, are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee............................................ $60,499 $56,001 Partnership administration fee............................ $10,791 $10,791 Reimbursement for services of affiliates.................. $23,024 $22,829 Reimbursement for construction oversight costs............ $ -- $ 196
NOTE E -- GOING CONCERN The General Partner is attempting to refinance the existing debt. The General Partner believes that it will be successful, however there can be no assurance that refinancing will be obtained. The Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. The financial statements have been prepared assuming that the Partnership will continue as a going concern and do not include any adjustments that might result from these uncertainties. F-13 1029 CATAWBA CLUB ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 1030 INDEPENDENT AUDITORS' REPORT General Partners Catawba Club Associates, Limited: We have audited the accompanying balance sheets of Catawba Club Associates, Limited as of December 31, 1996 and 1995 and the related statements of operations and changes in partners' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted or audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Catawba Club Associates, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 1, 1997 F-15 1031 CATAWBA CLUB ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 37,698 $ 47,731 Restricted -- tenant security deposits.................... 27,395 23,511 Accounts receivable......................................... 3,049 3,961 Escrow for taxes............................................ 44,373 43,749 Restricted escrows (Note B)................................. 204,220 204,458 Other assets................................................ 78,156 91,366 Investment properties (Note C): Land...................................................... 300,000 300,000 Buildings and related personal property................... 4,743,062 4,655,008 ----------- ----------- 5,043,062 4,955,008 Less accumulated depreciation............................. (3,327,626) (3,218,924) ----------- ----------- 1,715,436 1,736,084 ----------- ----------- $ 2,110,327 $ 2,150,860 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 14,070 $ 46,478 Tenant security deposits.................................. 27,395 23,511 Accrued taxes............................................. 96,276 86,616 Other liabilities (Note C)................................ 259,905 207,044 Notes payable (Note C).................................... 4,179,525 4,254,261 Partners' deficit........................................... (2,466,844) (2,467,050) ----------- ----------- $ 2,110,327 $ 2,150,860 =========== ===========
See Accompanying Notes to Financial Statements F-16 1032 CATAWBA CLUB ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 1,061,661 $ 997,400 Other income.............................................. 76,040 83,845 ----------- ----------- Total revenues.................................... 1,137,701 1,081,245 ----------- ----------- Expenses: Operating (Note D)........................................ 365,106 343,870 General and administrative (Note D)....................... 42,772 41,487 Maintenance............................................... 125,605 129,070 Depreciation.............................................. 108,702 197,458 Interest.................................................. 398,035 403,893 Property taxes............................................ 97,275 87,633 ----------- ----------- Total expenses.................................... 1,137,495 1,203,411 ----------- ----------- Net income (loss)................................. 206 (122,166) Partners' deficit at beginning of year...................... (2,467,050) (2,344,884) ----------- ----------- Partners' deficit at end of year............................ $(2,466,844) $(2,467,050) =========== ===========
See Accompanying Notes to Financial Statements F-17 1033 CATAWBA CLUB ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Cash flows from operating activities: Net income (loss)......................................... $ 206 $(122,166) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 108,702 197,458 Amortization of discounts and loan costs............... 41,433 40,168 Change in accounts: Restricted cash...................................... (3,884) 2,820 Accounts receivable.................................. 912 (438) Escrow for taxes..................................... (624) 7,143 Accounts payable..................................... (32,408) 20,002 Tenant security deposit liabilities.................. 3,884 (2,426) Accrued taxes........................................ 9,660 1,113 Other liabilities.................................... 52,861 54,500 --------- --------- Net cash provided by operating activities......... 180,742 198,174 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (88,054) (134,608) Deposits to restricted escrows............................ (8,129) (7,853) Receipts from restricted escrows.......................... 8,367 28,073 --------- --------- Net cash used in investing activities............. (87,816) (114,388) --------- --------- Cash flows from financing activities: Payments on notes payable................................. (102,959) (95,488) --------- --------- Net cash used in financing activities............. (102,959) (95,448) --------- --------- Net decrease in cash and cash equivalents......... (10,033) (11,662) Cash and cash equivalents at beginning of year.............. 47,731 59,393 --------- --------- Cash and cash equivalents at end of year.................... $ 37,698 $ 47,731 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 305,353 $ 312,864 ========= =========
See Accompanying Notes to Financial Statements F-18 1034 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Catawba Club Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated May 28, 1985. The Partnership owns and operates a 186 unit apartment complex, Catawba Club Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1996 and 1995 consist of deferred loan costs which are amortized over the term of the related borrowing. Deferred loan costs are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. F-19 1035 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements are anticipated to be completed in calendar year 1997 and any excess funds will be returned for property operations................................... $ 14,335 $ 14,159 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 189,885 190,299 -------- -------- $204,220 $204,458 ======== ========
NOTE C -- NOTES PAYABLE Notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $33,202, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,831,270 $3,934,229 Second mortgage note payable in interest only monthly installments of $824, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 130,106 130,106 Unsecured 12.5% promissory note payable to the Jacques-Miller Income Fund II, an affiliate, due November 1997; monthly payments of interest only and payments of excess cash flows in February of each year as defined in the note agreement........................................ 412,606 412,606 ---------- ---------- Principal balance at year end............................... 4,373,982 4,476,941 Less unamortized discount................................... (194,457) (222,680) ---------- ---------- $4,179,525 $4,254,261 ========== ==========
Accrued interest on the note payable to the Jacques-Miller Income Fund II, which is included in other liabilities, was $215,329 and $163,753 at December 31, 1996 and 1995, respectively. Scheduled principal payments of the notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 523,670 1998..................................................... 119,804 1999..................................................... 129,234 2000..................................................... 139,405 2001..................................................... 150,376 Thereafter............................................... 3,311,493 ---------- $4,373,982 ==========
F-20 1036 CATAWBA CLUB ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. The unsecured note may be prepaid at any time without penalty. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates, in addition to those disclosed in Note C, are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee............................................ $56,001 $54,335 Partnership administration fee............................ $10,791 $10,817 Reimbursement for services of affiliates.................. $22,829 $21,751 Reimbursement for construction oversight costs............ $ 196 $ 5,888
F-21 1037 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 1038 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 1039 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 September , 1998 A-3 1040 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CEDAR TREE 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, OUR OFFER CONSIDERATION WILL BE REDUCED UNLESS WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 1041 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-8 The AIMCO Operating Partnership.............. S-8 The Offer.................................... S-8 Risk Factors................................. S-8 Background and Reasons for the Offer......... S-13 Terms of the Offer........................... S-15 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-17 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-18 Comparison of Your Partnership and Our 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-20 Summary Financial Information of AIMCO Properties, L.P............................ S-21 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-23 Summary Financial Information of Cedar Tree Investors Limited Partnership.............. S-26 Comparative Per Unit Data.................... S-26 THE AIMCO OPERATING PARTNERSHIP................ S-27 RISK FACTORS................................... S-27 Risks to Unitholders Who Tender Their Units in the Offer............................... S-27 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-29 BACKGROUND AND REASONS FOR THE OFFER........... S-30 Background of the Offer...................... S-30 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-36 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-37 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-41 Fees and Expenses............................ S-42 Accounting Treatment......................... S-42
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-43 Allocation................................... S-44 Liquidation Preference....................... S-44 Redemption................................... S-45 Voting Rights................................ S-45 Restrictions on Transfer..................... S-45 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-48 CERTAIN FEDERAL INCOME TAX MATTERS............. S-51 Tax Consequences of Exchanging Units Solely for OP Units............................... S-51 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-51 Tax Consequences of Exchanging Units Solely for Cash................................... S-52 Adjusted Tax Basis........................... S-52 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-53 Passive Activity Losses...................... S-53 Foreign Offerees............................. S-54 VALUATION OF UNITS............................. S-54 FAIRNESS OF THE OFFER.......................... S-55 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-55 Fairness to Unitholders who Tender their Units...................................... S-56 Fairness to Unitholders who do not Tender their Units................................ S-57 Comparison of Consideration to Alternative Consideration.............................. S-57 Allocation of Consideration.................. S-58 STANGER ANALYSIS............................... S-58 Experience of Stanger........................ S-59 Summary of Materials Considered.............. S-59 Summary of Reviews........................... S-60 Conclusions.................................. S-60 Assumptions, Limitations and Qualifications............................. S-60 Compensation and Material Relationships...... S-61 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71 YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72
i 1042
PAGE ---- Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-73 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Balance Sheet Data......................... S-74 Statement of Operations.................... S-74 Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership............. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77
PAGE ---- Distributions and Transfers of Units......... S-77 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 1043 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 Cedar Tree 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 1044 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 1045 - 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 $2,640 per unit for the six months ended June 30, 1998 (equivalent to $5,280 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 distributions of $ 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 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 1046 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 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 considerations of $ consideration is fair. However, your units are not listed on any national securities exchange nor quoted on the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1047 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 100% of 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? 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: 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 1048 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 1049 (This page intentionally left blank) S-7 1050 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. As of October 1, 1998, 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. 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 5 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. 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 S-8 1051 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-9 1052 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 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 S-10 1053 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-11 1054 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, 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. 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 S-12 1055 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently don't own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners or from other sources. 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 S-13 1056 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. 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." S-14 1057 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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-15 1058 - 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 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-16 1059 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 own 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 S-17 1060 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 is not subject to such limitations. S-18 1061 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 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 generated in that capacity from the partnership. The property manager received management fees of $94,152 in 1996, $96,106 in 1997 and $52,073 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 Your Partnership and its Property. Cedar Tree Investors Limited Partnership is a Kansas limited partnership which was formed on June 14, 1991 for the purpose of owning and operating a single apartment property located in Shawnee, Kansas, known as Cedar Tree Apartments. In 1991, it completed a private placement of units that raised net proceeds of approximately $2,550,000. Cedar Tree Apartments consists of 344 apartment units. Your partnership has no employees. Property Management. Since December 1990, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. S-19 1062 Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2021, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $4,622,405, payable to FNMA, which bears interest at a rate of 6.43%. The mortgage debt is due in September, 2008. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-20 1063 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, 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-21 1064
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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-22 1065 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-23 1066
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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-24 1067 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-25 1068 SUMMARY FINANCIAL INFORMATION OF CEDAR TREE INVESTORS LIMITED PARTNERSHIP The summary financial information of Cedar Tree Investors Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Cedar Tree Investors Limited Partnership for the years ended December 31, 1997 and 1996, 1995, 1994 and 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 of Your Partnership" included herein. See "Index to Financial Statements." CEDAR TREE INVESTORS LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Data: Total Revenues............ 1,033,496 905,675 1,956,671 1,900,467 1,869,651 1,771,627 1,700,427 Net Income/(Loss)............... 240,157 138,099 270,488 252,642 174,244 300,722 303,674 Balance Sheet Data: Real Estate, Net of Accumulated Depreciation.................. 5,354,018 5,480,690 5,393,560 5,568,526 5,764,894 5,807,474 5,938,571 Total Assets.............. 6,386,775 6,377,911 6,301,510 6,463,360 6,744,275 6,967,984 7,210,155 Mortgage Notes Payable, including Accrued Interest.... 4,660,170 4,711,190 4,647,993 4,734,411 4,777,285 4,816,798 4,852,655 Partners' Capital/(Deficit)..... 1,479,763 1,509,226 1,439,604 1,573,136 1,722,504 1,948,260 2,202,841
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $2,640 $5,333.06
S-26 1069 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. 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 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 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. S-27 1070 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 Code. 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 therefore 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 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. 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 S-28 1071 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, 1998 were $2,640 per unit (equivalent to $5,280 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 received in an 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 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. 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. S-29 1072 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 level 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-30 1073 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners or from other sources. 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. S-31 1074 - 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 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 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 1075 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-33 1076 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 1077 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. 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 S-35 1078 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." 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. 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 S-36 1079 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, (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, by 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 9:00 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 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, Denver, Colorado 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. S-37 1080 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-38 1081 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, which change, 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 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 S-39 1082 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 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 S-40 1083 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. 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-41 1084 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. 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. 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 S-42 1085 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 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 S-43 1086 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 payment. 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 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. S-44 1087 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-45 1088 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-46 1089 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-47 1090 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-48 1091 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-49 1092 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-50 1093 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-51 1094 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-52 1095 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-53 1096 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-54 1097 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-55 1098 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 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, a third party expert, 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 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, 1998 were $2,640 (equivalent to $5,280 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-56 1099 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-57 1100 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. 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-58 1101 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-59 1102 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 September 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 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 property was 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, S-60 1103 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-61 1104 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 Kansas law for the purpose of owning and managing Delaware limited partnership. The AIMCO Operating Cedar Tree Apartments. 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 to acquire and operate The purpose of the AIMCO Operating Partnership is to your partnership's property for investment. Subject to conduct any business that may be lawfully conducted by restrictions contained in your partnership's agreement a limited partnership organized pursuant to the of limited partnership, your partnership may do all Delaware Revised Uniform Limited Partnership Act (as things necessary for or incidental to the protection amended from time to time, or any successor to such and benefit of your partnership, including, borrowing statute) (the "Delaware Limited Partnership Act"), funds 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-62 1105 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 units for cash and time to the limited partners and to other persons, and notes 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. 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 The general partner of your partnership may not enter The AIMCO Operating Partnership may lend or contribute into agreements with itself or any of its affiliates funds or other assets to its subsidiaries or other for services, except as otherwise specifically provided persons in which it has an equity investment, and such in your partnership's agreement of limited partnership persons may borrow funds from the AIMCO Operating or on a basis no less favorable to your partnership Partnership, on terms and conditions established in the than that which could have been arranged with sole and absolute discretion of the general partner. To unaffiliated third parties for comparable goods or the extent consistent with the business purpose of the services. Your partnership may not lend money to the AIMCO Operating Partnership and the permitted general partner or its affiliates, but the general activities of the general partner, the AIMCO Operating partner may lend such money to your partnership as the Partnership may transfer assets to joint ventures, general partner, in its sole discretion, deems limited liability companies, partnerships, necessary for the payment of any partnership corporations, business trusts or other business obligations and expenses. Such loans will be repaid entities in which it is or thereby becomes a with interest at rate of 1% per annum over the then participant upon such terms and subject to such prevailing prime rate of United Missouri Bank of Kansas conditions consistent with the AIMCO Operating Part- City, N.A., but in no event to exceed the maximum rate, nership Agreement and applicable law as the general from the first available funds of your partnership and partner, in its sole and absolute discretion, believes prior to distributions to the limited partners, only to be advisable. Except as expressly permitted by the from available funds; provided, however, that the AIMCO Operating Partnership Agreement, neither the general partner must first make reasonable efforts to general partner nor any of its affiliates may sell, obtain loans at the most favorable rates from transfer or convey any property to the AIMCO Operating unaffiliated persons. 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 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, management, maintenance, op- Partnership has credit agreements that restrict, among eration and sale of your partnership's property by your other things, its ability to incur indebtedness. See partnership, on such terms as the general partner, in "Risk Factors -- Risks of Significant Indebtedness" in its reasonable discretion, deems to be in the bests the accompanying Prospectus. interests of your partnership.
S-63 1106 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 the limited partners or their duly authorized with a statement of the purpose of such demand and at representative to inspect and copy the books and such OP Unitholder's own expense, to obtain a current records of your partnership, including a current list list of the name and last known business, residence or of the full name and last known business address of mailing address of the general partner and each other each partner set forth in alphabetical order, upon OP Unitholder. reasonable notice during business hours at the principal place of business of your partnership or such other place or places as may be determined by the general partner from time to time. In addition, a limited partner or its duly authorized representative has the right to receive by mail, upon written required to your partnership at such limited partner's sole cost and expense, a copy of a list of names and addresses of the limited partners and the number of units owned by each of them. However, no limited partner has the right to sell or disclose such list to any other person or to use such list for commercial purposes of any purpose unrelated to the business of your partnership.
Management Control The general partner of your partnership has full, All management powers over the business and affairs of exclusive and complete discretion in the management of the AIMCO Operating Partnership are vested in AIMCO-GP, your partnership's business and has all rights and Inc., which is the general partner. No OP Unitholder powers generally conferred by law or necessary, has any right to participate in or exercise control or advisable or consistent in connection therewith. The management power over the business and affairs of the general partner must perform such reasonable acts as AIMCO Operating Partnership. The OP Unitholders have may be consistent with good business practices in its the right to vote on certain matters described under performance as general partner. No limited partner may "Comparison of Ownership of Your Units and AIMCO OP take part in or interfere in any manner with the Units -- Voting Rights" below. The general partner may conduct or control of the business of your partnership not be removed by the OP Unitholders with or without and no limited partner has the right or authority to cause. act for or bind your partnership. 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 doing of any act or the failure to do the AIMCO Operating Partnership Agreement, the general any act by the general partner, which does not partner is not liable to the AIMCO Operating constitute fraud, gross negligence or willful mal- Partnership for losses sustained, liabilities incurred feasance as determined by a court of competent or benefits not derived as a result of errors in jurisdiction, in pursuance of the authority granted to judgment or mistakes of fact or law of any act or promote the interests of your partnership, the effect omission if the general partner acted in good faith. of which causes or results in loss or damage to your The AIMCO Operating Partnership Agreement provides for partnership, if done in good faith, will not subject indemnification of AIMCO, or any director or officer of the general partner or its affiliates to any liability. AIMCO (in its capacity as the previous general partner In addition, your partnership will also indemnify and of the AIMCO Operating Partnership), hold harmless the gen-
S-64 1107 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP eral partners and their affiliates from any claim, the general partner, any officer or director of general loss, expense, liability, action or damage resulting partner or the AIMCO Operating Partnership and such from any act or omission done in good faith which does other persons as the general partner may designate from not constitute fraud, gross negligence or willful and against all losses, claims, damages, liabilities, malfeasance as determined by a court of competent joint or several, expenses (including legal fees), jurisdiction, in pursuance of the authority granted to fines, settlements and other amounts incurred in promote the interests of your partnership, including, connection with any actions relating to the operations without limitation, reasonable fees and expenses of of the AIMCO Operating Partnership, as set forth in the attorneys engaged by the general partner in defense of AIMCO Operating Partnership Agreement. The Delaware such act or omission and other reasonable costs and Limited Partnership Act provides that subject to the expenses of litigation and appeal. 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, after notice to the general partner, the has exclusive management power over the business and limited partners may remove such general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners holding a majority of the partner may not be removed as general partner of the outstanding units. A general partner may resign at any AIMCO Operating Partnership by the OP Unitholders with time provided that such resignation is accepted by the or without cause. Under the AIMCO Operating Partnership limited partners owning more than 50% of the Agreement, the general partner may, in its sole outstanding units and sixty days prior to the effective discretion, prevent a transferee of an OP Unit from date of such resignation such general partner nominates becoming a substituted limited partner pursuant to the as a substitute general partner a willing person or AIMCO Operating Partnership Agreement. The general entity who meets the requirements of the tax laws. A partner may exercise this right of approval to deter, general partner may be admitted only with the consent delay or hamper attempts by persons to acquire a of the general partners, if any, and a controlling interest in the AIMCO Operating Partner- majority-in-interest of the limited partners. A limited ship. Additionally, the AIMCO Operating Partnership partner may not transfer its units without the consent Agreement contains restrictions on the ability of OP 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 Approval by a majority of the then outstanding limited With the exception of certain circumstances set forth partnership interests is necessary to effect an in the AIMCO Operating Partnership Agreement, whereby amendment to your partnership's agreement of limited the general partner may, without the consent of the OP partnership. Amendments may be proposed by the general Unitholders, amend the AIMCO Operating Partnership partner or by limited partners holding 10% or more of Agreement, amendments to the AIMCO Operating the then outstanding units. However, the general Partnership Agreement require the consent of the partner may amend your partnership's agreement of holders of a majority of the outstanding Common OP limited partnership from time to time to effect changes Units, excluding AIMCO and certain other limited of a ministerial nature which do not materially and exclusions (a "Majority in Interest"). Amendments to adversely affect the rights of the limited partners, as the AIMCO Operating Partnership Agreement may be required by law, to add to the representations, duties proposed by the general partner or by holders of a or obligations of the general partner or surrender any Majority in Interest. Following such proposal, the right or power granted to the general partner under general partner will submit any proposed amendment to your partnership's agreement of limited partnership for the OP Unitholders. The general partner will seek the the benefit of the limited partners, to cure any written consent of the OP Unitholders on the proposed ambiguity and to correct or supplement any provision in amendment or will call a meeting to vote thereon. See your partnership's agreement of limited partnership "Description of OP Units -- Amendment of the AIMCO which may be inconsistent with any other provision. Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to
S-65 1108 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP compensation for additional services rendered. 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 No limited partner, unless it is deemed to be taking Except for fraud, willful misconduct or gross part in the control of the business of your negligence, no OP Unitholder has personal liability for partnership, is bound by or personally liable for the the AIMCO Operating Partnership's debts and expenses, liabilities or obligation of your obligations, and liability of the OP Unitholders for partnership. The liability of a limited partner is the AIMCO Operating Partnership's debts and obligations limited solely to the amount of its contribution to the is generally limited to the amount of their invest- capital of your partnership, whether or not returned to ment in the AIMCO Operating Partnership. However, the it, together with the undistributed share of the limitations on the liability of limited partners for profits of your partnership from time to time credited the obligations of a limited partnership have not been to such limited partner's capital account and any money clearly established in some states. If it were or other property wrongfully paid or conveyed to such determined that the AIMCO Operating Partnership had limited partner on account of its contribution, been conducting business in any state without compli- including but not limited to money or property to which ance with the applicable limited partnership statute, creditors were legally entitled, paid or conveyed to or that the right or the exercise of the right by the such limited partner, and under certain circumstances, holders of OP Units as a group to make certain interest on returned capital. 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 is not required Unless otherwise provided for in the relevant to devote all of its time or business efforts to the partnership agreement, Delaware law generally requires affairs of your partnership, but must devote so much of a general partner of a Delaware limited partnership to its time and attention to your partnership as is adhere to fiduciary duty standards under which it owes necessary and advisable to successfully manage the its limited partners the highest duties of good faith, affairs of your partnership. The general partner is not fairness and loyalty and which generally prohibit such required to manage your partnership as its sole and general partner from taking any action or engaging in exclusive function and it may have other business any transaction as to which it has a conflict of interests and may engage in other activities in interest. The AIMCO Operating Partnership Agreement addition to those relating to your partnership, includ- expressly authorizes the general partner to enter into, ing the rendering of advice or services of any kind to on behalf of the AIMCO Operating Partnership, a right other investors and the making or management of other of first opportunity arrangement and other conflict investors. Neither your partnership nor any partner has avoidance agreements with various affiliates of the rights in or to such ventures or activities or to the AIMCO Operating Partnership and the general partner, on income or proceeds derived therefrom, and the pursuit such terms as the general partner, in its sole and of such ventures, even if competitive with the business absolute discretion, believes are advisable. The AIMCO of your partnership, shall not be deemed wrongful or Operating Partnership Agreement expressly limits the improper. In addition, any partner or its affiliates liability of the general partner by providing that the may engage in or possess an interest in other business general partner, and its officers and directors will ventures of every nature and description, whether such not be liable or accountable in damages to the AIMCO ventures are competitive with your partnership or Operating Partnership, the limited partners or otherwise, including but not limited to, the acquisi- assignees for errors in judgment or mistakes of fact or tion, ownership, financing, leasing, operation, law or of any act or omission if the general partner or management, syndication, brokerage, sale, construction such director or officer acted in good faith. See and development of real property, which may be located "Description of OP Units -- Fiduciary Responsibilities" in the market area or vicinity of your partnership's in the accompanying Prospectus. property, and neither your partnership nor any partners shall have any right in or to such independent ventures or to the income or profits derived therefrom.
Federal Income Taxation There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units Partnership. includes in income its allocable share of the AIMCO Operating Partnership's
S-66 1109 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, the applicable law or in the AIMCO ship Agreement, the OP Unitholders approval of hold- Operating Part- have
S-67 1110 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ers of a majority of the nership Agreement, the holders of voting rights only with respect to outstanding units is required to the Preferred OP Units will have certain limited matters such as amend your partnership's agreement the same voting rights as holders certain amendments and termination of limited partnership subject to of the Common OP Units. See of the AIMCO Operating Partnership certain limitations, to terminate "Description of OP Units" in the Agreement and certain transactions your partnership, to remove a accompanying Prospectus. So long as such as the institution of general partner and elect a any Preferred OP Units are bankruptcy proceedings, an replacement therefore and to outstanding, in addition to any assignment for the benefit of approve or disapprove the sale at other vote or consent of partners creditors and certain transfers by one time (or in a series of sales required by law or by the AIMCO the general partner of its interest pursuant to a single plan) of all Operating Partnership Agreement, in the AIMCO Operating Part- or substantially all of your the affirmative vote or consent of nership or the admission of a partnership's assets except sales holders of at least 50% of the successor general partner. made in the ordinary course of your outstanding Preferred OP Units will partnership's continuing business. be necessary for effecting any Under the AIMCO Operating Partner- All such actions, except the amendment of any of the provisions ship Agreement, the general partner removal of a general partner of the Partnership Unit Desig- has the power to effect the requires the concurrence of the nation of the Preferred OP Units acquisition, sale, transfer, general partner. that materially and adversely exchange or other disposition of affects the rights or preferences any assets of the AIMCO Operating A general partner may cause the of the holders of the Preferred OP Partnership (including, but not dissolution of your partnership by Units. The creation or issuance of limited to, the exercise or grant retiring unless, within ninety any class or series of partnership of any conversion, option, days, the remaining general partner units, including, without privilege or subscription right or agrees to continue the business of limitation, any partnership units any other right available in your partnership. If there are no that may have rights senior or connection with any assets at any remaining general partners, all of superior to the Preferred OP Units, time held by the AIMCO Operating the limited partners may agree to shall not be deemed to materially Partnership) or the merger, continue the business and elect a adversely affect the rights or consolidation, reorganization or successor general partner by a preferences of the holders of other combination of the AIMCO majority-in-interest vote within 90 Preferred OP Units. With respect to Operating Partnership with or into days of the resignation. the exercise of the above de- another entity, all without the scribed 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 Agreement) generated by partnership's assets. Your partner-
S-68 1111 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ship has made distributions in the Partnership may adjust the annual the AIMCO Operating Partnership past and is projected to make distribution rate on the Preferred during such quarter to the general distributions in 1998. OP Units to the lower of (i) % partner, the special limited plus the annual interest rate then partner and the holders of Common applicable to U.S. Treasury notes OP Units on the record date with a maturity of five years, and established by the general partner (ii) the annual dividend rate on with respect to such quarter, in the most recently issued AIMCO accordance with their respective non-convertible preferred stock interests in the AIMCO Operating which ranks on a parity with its Partnership on such record date. Class H Cumulative Preferred Stock. Holders of any other Preferred OP Such distributions will be Units issued in the future may have cumulative from the date of origi- priority over the general partner, nal issue. Holders of Preferred OP the special limited partner and Units will not be entitled to holders of Common OP Units with receive any distributions in excess respect to distributions of 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 Subject to the restrictions on There is no public market for the There is no public market for the transferability required by Federal Preferred OP Units and the OP Units. The AIMCO Operating Part- or state law, limited partner may Preferred OP Units are not listed nership Agreement restricts the transfer his limited partnership on any securities exchange. The transferability of the OP Units. interest to any person provided Preferred OP Units are subject to Until the expiration of one year that: (i) such transfer is not in restrictions on transfer as set from the date on which an OP contravention of your partnership's forth in the AIMCO Operating Unitholder acquired OP Units, agreement of limited partnership, Partnership Agreement. subject to certain exceptions, such (ii) a duly executed and OP Unitholder may not transfer all acknowledged assignment has been Pursuant to the AIMCO Operating or any portion of its OP Units to approved by the general partner, Partnership Agreement, until the any transferee without the consent which approval shall be in its sole expiration of one year from the of the general partner, which discretion and absolute power, and date on which a holder of Preferred consent may be withheld in its sole (iii) the transferee represents in OP Units acquired Preferred OP and absolute discretion. After the writing that it satisfies the Units, subject to certain expiration of one year, such suitability requirements for lim- exceptions, such holder of Preferred OP Units may
S-69 1112 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ited partners. However, no transfer not transfer all or any portion of OP Unitholder has the right to may occur if in light of the total its Preferred OP Units to any transfer all or any portion of its of all transfers sold or exchanged transferee without the consent of OP Units to any person, subject to within the period of twelve the general partner, which consent the satisfaction of certain consecutive months prior there, may be withheld in its sole and conditions specified in the AIMCO there might result a termination of absolute discretion. After the Operating Partnership Agreement, your partnership for tax purposes expiration of one year, such including the general partner's in the opinion of counsel. In order holders of Preferred OP Units has right of first refusal. See for a transferee to be substituted the right to transfer all or any "Description of OP Units -- as a limited partner, in addition portion of its Preferred OP Units Transfers and Withdrawals" in the to the above requirements: (1) the to any person, subject to the accompanying Prospectus. assignee must execute an satisfaction of certain conditions irrevocable power of attorney specified in the AIMCO Operating After the first anniversary of appointing the general partner as Partnership Agreement, including becoming a holder of Common OP the assignee's attorney-in-fact, the general partner's right of Units, an OP Unitholder has the (2) an opinion of counsel must be first refusal. right, subject to the terms and received by the general partner conditions of the AIMCO Operating that such transfer does not violate After a one-year holding period, a Partnership Agreement, to require applicable securities laws, (3) a holder may redeem Preferred OP the AIMCO Operating Partnership to transfer fee must be paid, (4) the Units and receive in exchange redeem all or a portion of the interest transferred must not be therefor, at the AIMCO Operating Common OP Units held by such party less than one Unit or such lesser Partnership's option, (i) subject in exchange for a cash amount based amount as the assignor owned and to the terms of any Senior Units, on the value of shares of Class A (5) such other conditions as are cash in an amount equal to the Common Stock. See "Description of set forth in your partnership's Liquidation Preference of the OP Units -- Redemption Rights" in agreement of limited partnership Preferred OP Units tendered for the accompanying Prospectus. Upon must be fulfilled. redemption, (ii) a number of shares receipt of a notice of redemption, of Class I Cumulative Preferred the general partner may, in its There are no redemption rights Stock of AIMCO that pay an sole and absolute discretion but associated with your units. aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-70 1113 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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 own 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 from your partnership but may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $94,152 in 1996, $96,106 in 1997 and $52,073 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-71 1114 YOUR PARTNERSHIP GENERAL Cedar Tree Investors Limited Partnership is a Kansas limited partnership which raised net proceeds of approximately $2,550,000 in 1991 through a private offering. The promoter for the private offering of your partnership was United Investors Equity Services, Inc. Insignia acquired your partnership in December 1990. AIMCO acquired Insignia in October, 1998. There are currently a total of 67 limited partners of your partnership and a total of 75 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on June 14, 1991 for the purpose of owning and operating a single apartment property located in Shawnee, Kansas, known as "Cedar Tree Apartments." Your partnership's property consists of 344 apartment units. There are 199 one-bedroom apartments and 144 two-bedroom apartments. The total rentable square footage of your partnership's property is 231,040 square feet. Your partnership's property had an average occupancy rate of approximately 92.44% in 1996 and 92.44% in 1997. The average annual rent per apartment unit is approximately $5,235. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1990, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $94,152, $96,106 and $52,073, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2021 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-72 1115 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $4,622,405, payable to FNMA, which bears interest at a rate of 6.43%. The mortgage debt is due in September, 2008. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. The audited financial statements have been audited by Deloitte & Touche. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 1116 Below is selected financial information for Cedar Tree Investors Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
CEDAR TREE INVESTORS LIMITED PARTNERSHIP -------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ---------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ---------- ---------- ---------- BALANCE SHEET DATA Cash and Cash Equivalents....... $ 533,978 $ 431,720 $ 499,946 $ 529,097 $ 622,570 $ 819,774 $ 839,896 Land & Building................. 6,997,097 6,846,756 6,898,133 6,796,085 6,726,542 6,523,009 6,429,734 Accumulated Depreciation........ (1,643,080) (1,366,066) (1,504,573) (1,227,559) (961,648) (715,535) (491,163) Other Assets.................... 498,779 465,501 408,004 365,737 356,811 340,736 431,688 ----------- ----------- ----------- ----------- ---------- ---------- ---------- Total Assets........... $ 6,386,775 $ 6,377,911 $ 6,301,510 $ 6,463,360 $6,744,275 $6,967,984 $7,210,155 =========== =========== =========== =========== ========== ========== ========== Mortgage & Accrued Interest..... 4,660,170 4,711,190 4,647,993 4,734,411 4,777,285 4,816,798 4,852,655 Other Liabilities............... 246,842 157,495 213,913 155,813 244,486 202,926 154,659 ----------- ----------- ----------- ----------- ---------- ---------- ---------- Total Liabilities...... $ 4,907,012 $ 4,868,685 $ 4,861,906 $ 4,890,224 $5,021,771 $5,019,724 $5,007,314 ----------- ----------- ----------- ----------- ---------- ---------- ---------- Partners Capital (Deficit)...... $ 1,479,763 $ 1,509,226 $ 1,439,604 $ 1,573,136 $1,722,504 $1,948,260 $2,202,841 =========== =========== =========== =========== ========== ========== ==========
CEDAR TREE INVESTORS LIMITED PARTNERSHIP ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue..................... $ 971,036 $ 845,671 $1,815,531 $1,770,230 $1,723,740 $1,610,896 $1,614,882 Other Income....................... 62,460 60,004 141,140 130,237 145,911 160,731 85,545 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. $1,033,496 $ 905,675 $1,956,671 $1,900,467 $1,869,651 $1,771,627 $1,700,427 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 342,065 315,635 777,678 748,824 796,744 614,028 558,951 General & Administrative........... 15,276 15,973 25,434 25,820 66,681 51,030 52,184 Depreciation....................... 138,507 138,507 277,013 265,911 246,113 224,372 208,515 Interest Expense................... 226,075 228,443 470,025 475,804 463,814 467,470 470,788 Property Taxes..................... 71,417 69,019 136,033 131,466 122,055 114,005 106,315 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ $ 793,340 $ 767,577 $1,686,183 $1,647,825 $1,695,407 $1,470,905 $1,396,753 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income......................... $ 240,157 $ 138,099 $ 270,488 $ 252,642 $ 174,244 $ 300,722 $ 303,674 ========== ========== ========== ========== ========== ========== ==========
S-74 1117 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $240,157 for the six months ended June 30, 1998, compared to $138,099 for the six months ended June 30, 1997. The increase in net income of $102,058, or 73.90% was primarily the result of an increase in rental revenues offset by an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,033,496 for the six months ended June 30, 1998, compared to $905,675 for the six months ended June 30, 1997, an increase of $127,821, or 14.11%. This was primarily a result of increased average occupancy levels as well as increases in rental rates. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $342,065 for the six months ended June 30, 1998, compared to $315,635 for the six months ended June 30, 1997, an increase of $26,430 or 8.37%. The increase is primarily due to an increase in marketing and property management expenses. Management expenses totaled $52,073 for the six months ended June 30, 1998, compared to $45,694 for the six months ended June 30, 1997, an increase of $6,379, or 13.96%. The increase resulted from an increase in rental revenues, as management fees are as management fees are calculated based on a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $15,276 for the six months ended June 30, 1998 compared to $15,973 for the six months ended June 30, 1997, a decrease of $697. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $226,075 for the six months ended June 30, 1998, compared to $228,443 for the six months ended June 30, 1997, a decrease of $2,368, or 1.04%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $270,488 for the year ended December 31, 1997, compared to $252,642 for the year ended December 31, 1996. The increase in net income of $17,846, or 7.06% was primarily the result of an increase in rental revenues offset by an increase in operating expenses. S-75 1118 Revenues Rental and other property revenues from the partnership's property totaled $1,956,671 for the year ended December 31, 1997, compared to $1,900,467 for the year ended December 31, 1996, an increase of $56,204, or 2.96%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $777,678 for the year ended December 31, 1997, compared to $748,824 for the year ended December 31, 1996, an increase of $28,854 or 3.85%. Management expenses totaled $96,106 for the year ended December 31, 1997, compared to $94,152 for the year ended December 31, 1996, an increase of $1,954, or 2.08%. General and Administrative Expenses General and administrative expenses totaled $25,434 for the year ended December 31, 1997 compared to $25,820 for the year ended December 31, 1996, a decrease of $386 or 1.49%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $470,025 for the year ended December 31, 1997, compared to $475,804 for the year ended December 31, 1996, a decrease of $5,779, or 1.21%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $252,642 for the year ended December 31, 1996, compared to $174,244 for the year ended December 31, 1995. The increase in net income of $78,398, or 44.99% was primarily the result of a decrease in operating expenses and an increase in revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,900,467 for the year ended December 31, 1996, compared to $1,869,651 for the year ended December 31, 1995, an increase of $30,816, or 1.65%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $748,824 for the year ended December 31, 1996, compared to $796,744 for the year ended December 31, 1995, a decrease of $47,920 or 6.01%. The decrease is primarily due to a decrease in maintenance expenses due to an extensive exterior painting project at the property in the fourth quarter of 1995. Management expenses totaled $94,152 for the year ended December 31, 1996, compared to $91,253 for the year ended December 31, 1995, an increase of $2,899, or 3.18%. General and Administrative Expenses General and administrative expenses totaled $25,820 for the year ended December 31, 1996 compared to $66,681 for the year ended December 31, 1995, a decrease of $40,861 or 61.28%. The decrease is primarily due to reclassing on the financial statements of certain accounts from General and Administrative to Operating. Grouped the same way as in 1995, 1996 General and Administrative expense would be $65,555. S-76 1119 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $475,804 for the year ended December 31, 1996, compared to $463,814 for the year ended December 31, 1995, an increase of $11,990 or 2.59%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $533,978 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 doing of any act or the failure to do any act by the general partner, which does not constitute fraud, gross negligence or willful malfeasance as determined a court of competent jurisdiction, in pursuance of the authority granted to promote the interests of your partnership, the effect of which causes or results in loss or damage to your partnership, if done in good faith, will not subject the general partner or its affiliates to any liability. 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 owned by AIMCO. See "Conflicts of Interest". Your partnership will indemnify and hold harmless the general partners and their affiliates from any claim, loss, expense, liability, action or damage resulting from any act or omission done in good faith which does not constitute fraud, gross negligence or willful malfeasance as determined by a court of competent jurisdiction, in pursuance of the authority granted to promote the interests of your partnership, including, without limitation, reasonable fees and expenses of attorneys engaged by the general partner in defense of such act or omission and other reasonable costs and expenses of litigation and appeal. All costs and expenses incurred in defending any proceeding or action or otherwise will be advanced by your partnership. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $83,607.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $7,330.00 1995........................................................ $5,280.00 1996........................................................ $5,319.86 1997........................................................ $5,333.06 1998 (through June 30)...................................... $2,640.00
S-77 1120 Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $10,000 1995........................................................ 15,000 1996........................................................ 15,756 1997........................................................ 15,816
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $91,253 1996........................................... 94,152 1997........................................... 96,106 1998 (through June 30)......................... 52,073
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 company paid to the property manager or AIMCO and its affiliates. S-78 1121 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Cedar Tree Investors Limited Partnership at December 31, 1997, 1996 and 1995 and for the four years in the period ended December 31, 1997, appearing in this Prospectus Supplement have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-79 1122 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-8 Balance Sheet as of December 31, 1997....................... F-9 Statements of Operations for the years ended December 31, 1997 and 1996............................................. F-10 Statements of Changes in Partners' Capital (Deficit) for the years ended December 31, 1997 and 1996.................... F-11 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-12 Notes to Financial Statements............................... F-13 Balance Sheet as of December 31, 1996....................... F-18 Statements of Operations for the years ended December 31, 1996 and 1995............................................. F-19 Statements of Changes in Partners' Capital (Deficit) for the years ended December 31, 1996 and 1995.................... F-20 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-21 Notes to Financial Statements............................... F-22 Independent Auditors' Report................................ F-25 Balance Sheet as of December 31, 1995....................... F-26 Statements of Operations for the years ended December 31, 1995 and 1994............................................. F-27 Statements of Changes in Partners' Capital (Deficit) for the years ended December 31, 1995 and 1994.................... F-28 Statements of Cash Flows for the years ended December 31, 1995 and 1994............................................. F-29 Notes to Financial Statements............................... F-30
F-1 1123 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 533,978 Receivables and Deposits.................................... 84,860 Investments................................................. 0 Restricted Escrows.......................................... 218,275 Other Assets................................................ 195,644 Investment Property: Land...................................................... $ 1,032,000 Building and related personal property.................... 5,965,098 ----------- 6,997,098 Less: Accumulated depreciation............................ (1,643,080) 5,354,018 ----------- ---------- Total Assets:..................................... $6,386,775 ========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 2,832 Other Accrued Liabilities................................... 61,133 Property Taxes Payable...................................... 139,434 Tenant Security Deposits.................................... 81,208 Notes Payable............................................... 4,622,405 Partners' Capital........................................... 1,479,763 ---------- Total Liabilities and Partners' Capital........... $6,386,775 ==========
F-2 1124 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 ---------- -------- Revenues: Rental Income............................................. $ 971,036 $845,671 Other Income.............................................. 62,460 60,004 (Gain) Loss on Disp of Property........................... -- Casualty Gain/Loss........................................ -- -- ---------- -------- Total Revenues:................................... 1,033,496 905,675 Expenses: Operating Expenses........................................ 342,065 315,635 General and Administrative Expenses....................... 15,276 15,973 Depreciation Expense...................................... 138,507 138,507 Interest Expense.......................................... 226,075 228,443 Property Tax Expense...................................... 71,417 69,019 ---------- -------- Total Expenses:................................... 793,340 767,577 Net (Income) Loss................................. $ 240,156 $138,098 ========== ========
F-3 1125 CEDAR TREE INVESTORS LIMITED PARTNERSHIP A KANSAS LIMITED PARTNERSHIP CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------- 1998 1997 ----------- ----------- Operating Activities: Net Income (loss)......................................... $ 240,157 $ 138,099 Adjustments to reconcile net income (loss) to net cash provided by operating Activities:...................... -- -- Depreciation and Amortization............................. 138,507 138,507 Changes in accounts:...................................... -- -- Receivables and deposits and other assets.............. (109,829) (1,721) Accounts Payable and accrued expenses.................. 70,694 1,682 --------- --------- Net cash provided by (used in) operating activities...................................... 339,529 276,567 --------- --------- Investing Activities Property improvements and replacements.................... (98,965) (50,671) Net (increase)/decrease in restricted escrows............. 19,054 (34,865) --------- --------- Net cash provided by (used in) investing activities....... (79,911) (85,536) --------- --------- Financing Activities Payments on mortgage...................................... (25,588) (23,221) Partners' Distributions................................... (199,998) (202,009) --------- --------- Net cash provided by (used in) financing activities....... (225,586) (225,230) --------- --------- Net increase (decrease) in cash and cash equivalents...... 34,032 (34,199) Cash and cash equivalents at beginning of year.... 499,946 465,919 --------- --------- Cash and cash equivalents at end of period........ $ 533,978 $ 431,720 ========= =========
F-4 1126 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Cedar Tree Investors Limited Partnership (a Kansas Limited Partnership) as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 1127 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND INDEPENDENT AUDITORS' REPORT F-6 1128 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) TABLE OF CONTENTS
PAGE(S) --------- Independent Auditors' Report................................ F-8 Financial Statements as of December 31, 1997 and for the Years Ended December 31, 1997 and 1996: Balance Sheet............................................. F-9 Statements of Operations.................................. F-10 Statements of Changes in Partners' Capital (Deficit)...... F-11 Statements of Cash Flows.................................. F-12 Notes to Financial Statements............................. F-13 - 15
F-7 1129 INDEPENDENT AUDITORS' REPORT To the Partners of Cedar Tree Investors Limited Partnership (A Kansas Limited Partnership): We have audited the accompanying balance sheet of Cedar Tree Investors Limited Partnership (a Kansas Limited Partnership) (the "Partnership") as of December 31, 1997, and the related statements of operations, changes in partners' capital (deficit), and cash flows for each of the two years in the period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 1997, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP February 17, 1998 (except for Note 6, as to which the date is March 17, 1998) F-8 1130 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) BALANCE SHEET DECEMBER 31, 1997 ASSETS Cash and cash equivalents................................... $ 499,946 Receivables and deposits.................................... 102,427 Restricted escrows.......................................... 237,329 Other assets (Note 1)....................................... 68,248 Investment properties -- at cost (Notes 1 and 2): Land...................................................... $ 1,032,000 Building and related personal property.................... 5,866,133 ----------- 6,898,133 Less accumulated depreciation............................... (1,504,573) 5,393,560 ----------- ---------- Total Assets...................................... $6,301,510 ========== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable.......................................... $ 14,977 Tenant security deposits payable.......................... 74,723 Accrued property taxes.................................... 68,017 Other liabilities......................................... 56,196 Mortgage note payable (Note 2)............................ 4,647,993 Partners' Capital (Deficit) (Note 3): General partner........................................... $ (6,713) Limited partners (75 units issued and outstanding)........ 1,446,317 1,439,604 ----------- ---------- Total Liabilities and Partners' Capital........... $6,301,510 ==========
See notes to financial statements. F-9 1131 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 ---------- ---------- Revenues: Rental income............................................. $1,815,531 $1,770,230 Other income.............................................. 141,140 130,237 ---------- ---------- Total revenues......................................... 1,956,671 1,900,467 ---------- ---------- Expenses: Operating................................................. 777,678 748,824 General and administrative................................ 25,434 25,820 Depreciation.............................................. 277,013 265,911 Interest.................................................. 470,025 475,804 Property taxes............................................ 136,033 131,466 ---------- ---------- Total expenses......................................... 1,686,183 1,647,825 ---------- ---------- Net Income (Note 5)......................................... $ 270,488 $ 252,642 ========== ========== Net Income Allocated to General Partner (1%)................ $ 2,705 $ 2,526 Net Income Allocated to Limited Partners (99%).............. 267,783 250,116 ---------- ---------- Total............................................. $ 270,488 $ 252,642 ========== ========== Net Income Per Limited Partnership Unit -- Based on 75 weighted average limited partnership units during the years ended December 31, 1997 and 1996.................... $ 3,570 $ 3,335 ========== ==========
See notes to financial statements. F-10 1132 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 1997 AND 1996
LIMITED PARTNERSHIP GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL ----------- ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1995....................................... 75 $(3,894) $1,726,398 $1,722,504 Partners' distributions.................... -- (4,010) (398,000) (402,010) Net income for the year ended December 31, 1996....................... -- 2,526 250,116 252,642 ------- ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1996....................................... 75 (5,378) 1,578,514 1,573,136 Partners' distributions.................... -- (4,040) (399,980) (404,020) Net income for the year ended December 31, 1997....................... -- 2,705 267,783 270,488 ------- ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1997....................................... 75 $(6,713) $1,446,317 $1,439,604 ======= ======= ========== ==========
See notes to financial statements. F-11 1133 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 --------- --------- Cash Flows From Operating Activities: Net income................................................ $ 270,488 $ 252,642 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 277,013 265,911 Amortization of loan costs............................. 15,351 15,351 Change in operating assets and liabilities: Receivables and deposits............................. (11,905) 13,599 Other assets......................................... 135 (1,491) Accounts payable..................................... 4,401 (50,798) Accrued property taxes............................... 2,284 4,706 Tenant security deposits payable..................... 11,545 (731) Other liabilities.................................... 1,049 (41,532) --------- --------- Net cash provided by operating activities......... 570,361 457,657 --------- --------- Cash Flows From Investing Activities: Property improvements and replacements.................... (102,048) (69,543) Net receipts from (deposits to) restricted escrows........ 17,331 (35,654) --------- --------- Net cash used in investing activities............. (84,717) (105,197) --------- --------- Cash Flows From Financing Activities: Principal payments on mortgage note payable............... (47,597) (43,192) Partners' distributions................................... (404,020) (402,010) --------- --------- Net cash used in financing activities............. (451,617) (445,202) --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents........ 34,027 (92,742) Cash and Cash Equivalents, Beginning of Year................ 465,919 558,661 --------- --------- Cash and Cash Equivalents, End of Year...................... $ 499,946 $ 465,919 ========= ========= Supplemental Disclosure of Cash Flow Information -- Cash paid during the year for interest......................... $ 455,730 $ 459,816 ========= =========
See notes to financial statements. F-12 1134 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND 1996 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Cedar Tree Investors Limited Partnership (a Kansas Limited Partnership) (the "Partnership") was formed to acquire, own and operate Cedar Tree Apartments, a 344-unit multifamily residential complex located in Shawnee, Kansas. The general partner of the Partnership is United Investors Real Estate, Inc., a Delaware corporation. Basis of Accounting The accompanying financial statements of the Partnership are prepared on the accrual basis and, therefore, revenue is recorded as earned and costs and expenses are recorded as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Cash and cash equivalents includes cash on hand and in banks, money market funds and certificates of deposit with original maturities of less than three months. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the leases and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Income Taxes For income tax purposes, the Partnership reports revenue and costs and expenses on the accrual method. No income tax provisions have been shown in the accompanying statements of operations since the partners are taxed individually. Investment Properties Investment properties are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of 15 to 40 years for buildings and improvements and 5 to 12 years for furniture and fixtures. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Other Assets Included in other assets are deferred charges which consist of loan costs totaling $153,506 which are amortized over the term of the related note. Accumulated amortization as of December 31, 1997 was $98,532. F-13 1135 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Advertising The Partnership expenses the cost of advertising as incurred. Advertising expense, included in operating expenses, was $48,608 and $25,589 for the years ended December 31, 1997 and 1996, respectively. Reclassifications Certain reclassifications of prior year balances have been made to conform to the current year's presentation. 2. MORTGAGE NOTE PAYABLE The mortgage note payable consists of a 10-year nonrecourse note collateralized by Cedar Tree Apartments, payable in monthly installments of $41,944, including interest. The interest rate is fixed at 9.75% per year. The mortgage note payable matures on September 1, 2001. Scheduled maturities of principal are as follows:
YEAR ENDING DECEMBER 31, AMOUNT ------------ ---------- 1998..................................................... $ 52,450 1999..................................................... 57,799 2000..................................................... 63,693 2001..................................................... 4,474,051 ---------- Total.................................................... $4,647,993 ==========
3. PARTNERS' EQUITY Allocations of Profits and Losses In accordance with the partnership agreement, all profits and losses are to be allocated 1% to the general partner and 99% to the limited partners. Distributions The Partnership allocates distributions 1% to the general partner and 99% to the limited partners. On February 15, 1998, the Partnership paid a distribution to the partners of $100,000. 4. RELATED PARTY TRANSACTIONS During the years ended December 31, 1997 and 1996, the Partnership paid the following amounts to affiliates of the general partner:
1997 1996 ------- ------- Property management fees................................. $96,106 $94,152 Reimbursement of expenses................................ 15,816 15,756
In addition, affiliates of the general partner were paid $6,844 and $6,537 during 1997 and 1996, respectively, for construction oversight costs incurred in conjunction with the Partnership's capital improvement and major repair projects. For the period from January 1, 1996 to August 31, 1997, the Partnership insured Cedar Tree Apartments under a master policy through an agency and insurer unaffiliated with the general partner. An affiliate of the general partner acquired, in the acquisition of a business, certain financial obligations from an insurance F-14 1136 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the general partner, who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the general partner by virtue of the agent's obligations as not significant. 5. PARTNER TAX INFORMATION The following is a reconciliation between net income as reported in the financial statements and Federal taxable income allocated to the partners in the Partnership's information returns for the years ended December 31, 1997 and 1996:
1997 1996 -------- -------- Net income as reported................................. $270,488 $252,642 Add (deduct): Deferred revenue..................................... 1,905 (39,988) Depreciation differences............................. 11,077 5,102 Other................................................ 200 300 -------- -------- Federal taxable income................................. $283,670 $218,056 ======== ======== Federal taxable income per limited partnership unit.... $ 3,744 $ 2,878 ======== ========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets at December 31, 1997 and 1996:
1997 1996 ---------- ---------- Net assets as reported.............................. $1,439,604 $1,573,136 Differences in basis of assets and liabilities: Deferred revenue.................................. 4,911 3,006 Accumulated depreciation.......................... (9,377) (20,454) Syndication costs................................. 213,094 213,094 Other............................................. 500 300 ---------- ---------- Net assets -- tax basis............................. $1,648,732 $1,769,082 ========== ==========
6. SUBSEQUENT EVENTS On March 17, 1998, Insignia Financial Group, Inc. ("Insignia") entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the general partner of the Partnership. F-15 1137 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND INDEPENDENT AUDITORS' REPORT F-16 1138 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) TABLE OF CONTENTS
PAGE ----------- Financial Statements as of December 31, 1996 and for the Years Ended December 31, 1996 and 1995: Balance Sheet............................................. F-18 Statements of Operations.................................. F-19 Statements of Changes in Partners' Capital (Deficit)...... F-20 Statements of Cash Flows.................................. F-21 Notes to Financial Statements............................. F-22 - F-24
F-17 1139 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) BALANCE SHEET DECEMBER 31, 1996 ASSETS Cash and cash equivalents................................... $ 465,919 Restricted cash -- tenant security deposits................. 63,178 Accounts receivable......................................... 3,347 Prepaid expenses............................................ 13,408 Escrows for taxes and insurance............................. 23,997 Restricted escrows.......................................... 254,660 Deferred charges -- net of accumulated amortization of $83,181................................................... 70,325 Apartment properties -- at cost (Notes 1 and 2): Land...................................................... $ 1,032,000 Buildings, improvements and related personal property..... 5,764,085 ----------- 6,796,085 Less accumulated depreciation............................... (1,227,559) 5,568,526 ----------- ---------- Total Assets...................................... $6,463,360 ========== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable............................................ $ 10,576 Accrued and other liabilities: Property taxes............................................ $ 65,733 Tenant security deposits.................................. 63,178 Interest.................................................. 38,821 Unearned rental collections............................... 3,006 Other..................................................... 13,320 184,058 ----------- Mortgage note payable (Note 2).............................. 4,695,590 Partners' Capital (Deficit) (Note 3): General partner............................................. (5,378) Limited partners (75 units issued and outstanding).......... 1,578,514 1,573,136 ----------- ---------- Total Liabilities and Partners' Capital........... $6,463,360 ==========
See notes to financial statements. F-18 1140 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ---------- ---------- Revenues: Rentals................................................... $1,770,230 $1,723,740 Other income.............................................. 111,766 100,696 ---------- ---------- Total revenues......................................... 1,881,996 1,824,436 ---------- ---------- Expenses: Operating................................................. 317,257 294,010 Administrative............................................ 65,555 66,681 Property management fees (Note 4)......................... 94,152 91,253 Advertising and rental incentives......................... 58,773 80,013 Maintenance............................................... 198,565 277,823 Depreciation.............................................. 265,911 246,113 Amortization of deferred charges.......................... 15,351 15,350 Interest.................................................. 460,453 463,814 Property taxes............................................ 131,466 122,055 Insurance................................................. 40,342 38,295 ---------- ---------- Total expenses......................................... 1,647,825 1,695,407 ---------- ---------- Income From Property Operations............................. 234,171 129,029 Interest Income............................................. 18,471 45,215 ---------- ---------- Net Income (Note 5)......................................... $ 252,642 $ 174,244 ========== ========== Net Income Allocated to General Partner (1%)................ $ 2,526 $ 1,742 Net Income Allocated to Limited Partners (99%).............. 250,116 172,502 ---------- ---------- Total............................................. $ 252,642 $ 174,244 ========== ========== Net Income Per Limited Partnership Unit -- Based on 75 weighted average limited partnership units during the years ended December 31, 1996 and 1995.................... $ 3,335 $ 2,300 ========== ==========
See notes to financial statements. F-19 1141 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 1996 AND 1995
LIMITED PARTNERSHIP GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL ----------- ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1994....................................... 75 $(1,636) $1,949,896 $1,948,260 Partners' distributions.................... -- (4,000) (396,000) (400,000) Net income for the year ended December 31, 1995.................................... -- 1,742 172,502 174,244 ---- ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1995....................................... 75 (3,894) 1,726,398 1,722,504 Partners' distributions.................... -- (4,010) (398,000) (402,010) Net income for the year ended December 31, 1996.................................... -- 2,526 250,116 252,642 ---- ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1996....................................... 75 $(5,378) $1,578,514 $1,573,136 ==== ======= ========== ==========
See notes to financial statements. F-20 1142 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 -------- -------- Cash Flows From Operating Activities: Net income................................................ $252,642 $174,244 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 265,911 246,113 Amortization of deferred charges....................... 15,351 15,350 Change in operating assets and liabilities: Restricted cash...................................... 731 (13,329) Accounts receivable.................................. (1,357) 1,712 Prepaid expenses..................................... (1,491) (327) Escrow deposits for taxes and insurance.............. 14,225 (2,134) Accounts payable..................................... (50,798) 31,775 Accrued property taxes............................... 4,706 4,717 Tenant security deposits liability................... (731) 8,724 Accrued interest..................................... 318 (318) Unearned rental collections.......................... (39,989) (9,967) Other liabilities.................................... (1,861) 6,311 -------- -------- Net cash provided by operating activities......... 457,657 462,871 -------- -------- Cash Flows From Investing Activities: Property improvements and replacements.................... (69,543) (203,533) Deposits to restricted escrows............................ (68,800) (78,850) Receipts from restricted escrows.......................... 33,146 48,174 -------- -------- Net cash used in investing activities............. (105,197) (234,209) -------- -------- Cash Flows From Financing Activities: Principal payments on mortgage note payable............... (43,192) (39,195) Partners' distributions................................... (402,010) (400,000) -------- -------- Net cash used in financing activities............. (445,202) (439,195) -------- -------- Net Decrease in Cash and Cash Equivalents................... (92,742) (210,533) Cash and Cash Equivalents, Beginning of Year................ 558,661 769,194 -------- -------- Cash and Cash Equivalents, End of Year...................... $465,919 $558,661 ======== ======== Supplemental Disclosure of Cash Flow Information -- Cash paid during the year for interest......................... $459,816 $464,132 ======== ========
See notes to financial statements. F-21 1143 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996 AND 1995 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Cedar Tree Investors Limited Partnership (A Kansas Limited Partnership) (the "Partnership") was formed to acquire, own and operate Cedar Tree Apartments, a 344-unit multifamily residential complex located in Shawnee, Kansas. The general partner of the Partnership is United Investors Real Estate, Inc., a Delaware corporation. Basis of Accounting The accompanying financial statements of the Partnership are prepared on the accrual basis and, therefore, revenue is recorded as earned and costs and expenses are recorded as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Cash and cash equivalents includes cash on hand and in banks, money market funds and certificates of deposit with original maturities of less than three months. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are considered restricted cash. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Income Taxes For income tax purposes, the Partnership reports revenue and costs and expenses on the accrual method. No income tax provisions have been shown in the accompanying statements of operations since the partners are taxed individually. Apartment Properties Apartment properties are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of 15 to 40 years for buildings and improvements and 5 to 12 years for furniture and fixtures. During 1995, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of SFAS No. 121 had no effect on the Partnership's financial statements. F-22 1144 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Deferred Charges Deferred charges consist of loan costs which are amortized over the term of the related note. Advertising The Partnership expenses the cost of advertising as incurred. Advertising expense, included in operating expenses, was $25,589 and $18,647 for the years ended December 31, 1996 and 1995, respectively. Reclassifications Certain reclassifications of prior year balances have been made to conform to the current year's presentation. 2. MORTGAGE NOTE PAYABLE The mortgage note payable consists of a 30-year nonrecourse note collateralized by Cedar Tree Apartments, payable in monthly installments of $41,944, including interest. The interest rate is fixed at 9.75% per year. Scheduled maturities of principal are as follows:
YEAR ENDING DECEMBER 31, AMOUNT ------------ ---------- 1997..................................................... $ 47,597 1998..................................................... 52,450 1999..................................................... 57,799 2000..................................................... 63,693 2001..................................................... 70,189 Thereafter............................................... 4,403,862 ---------- Total.......................................... $4,695,590 ==========
3. PARTNERS' EQUITY Allocations of Profits and Losses In accordance with the partnership agreement, all profits and losses are to be allocated 1% to the general partner and 99% to the limited partners. Distributions The Partnership allocates distributions 1% to the general partner and 99% to the limited partners. Subsequent to December 31, 1996, the Partnership paid a distribution to the partners of $101,000 on February 18, 1997. 4. RELATED PARTY TRANSACTIONS During the years ended December 31, 1996 and 1995, the Partnership paid the following amounts to affiliates of the general partner:
1996 1995 ------- ------- Property management fees................................. $94,152 $91,253 Reimbursement of expenses................................ 15,756 15,000
F-23 1145 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) In addition, affiliates of the general partner were paid $6,537 and $20,256 during 1996 and 1995, respectively, for construction oversight costs incurred in conjunction with the Partnership's capital improvement and major repair projects. The Partnership insures Cedar Tree Apartments under a master policy through an agency and insurer unaffiliated with the general partner. An affiliate of the general partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the general partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the general partner by virtue of the agent's obligations is not significant. 5. PARTNER TAX INFORMATION The following is a reconciliation between net income as reported in the financial statements and Federal taxable income allocated to the partners in the Partnership's information returns for the years ended December 31, 1996 and 1995:
1996 1995 ---------- ---------- Net income as reported.............................. $ 252,642 $ 174,244 Add (deduct): Deferred revenue.................................. (39,988) (9,968) Depreciation differences.......................... 5,102 (4,330) Other............................................. 300 -- ---------- ---------- Federal taxable income.............................. $ 218,056 $ 159,946 ========== ========== Federal taxable income per limited partnership unit.............................................. $ 2,878 $ 2,111 ========== ==========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets at December 31, 1996 and 1995:
1996 1995 ---------- ---------- Net assets as reported.............................. $1,573,136 $1,722,504 Differences in basis of assets and liabilities: Deferred revenue.................................. 3,006 42,994 Accumulated depreciation.......................... (20,454) (25,556) Syndication costs................................. 213,094 213,094 Other............................................. 300 -- ---------- ---------- Net assets -- tax basis............................. $1,769,082 $1,953,036 ========== ==========
F-24 1146 INDEPENDENT AUDITORS' REPORT To the Partners of Cedar Tree Investors Limited Partnership (A Kansas Limited Partnership) We have audited the accompanying balance sheet of Cedar Tree Investors Limited Partnership (A Kansas Limited Partnership) (the "Partnership") as of December 31, 1995, and the related statements of operations, changes in partners' capital (deficit), and cash flows for each of the two years in the period ended December 31, 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 1995, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP February 21, 1996 (February 26, 1996 as to the second paragraph of Note 3) F-25 1147 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) BALANCE SHEET DECEMBER 31, 1995 ASSETS Cash and Cash Equivalents................................... $ 558,661 Restricted Cash -- Tenant Security Deposits................. 63,909 Accounts Receivable......................................... 1,990 Prepaid Expenses............................................ 11,917 Escrows for Taxes and Insurance............................. 38,222 Restricted Escrows.......................................... 219,006 Deferred Charges -- Net of accumulated amortization of $67,830................................................... 85,676 Apartment Properties -- At cost (Notes 1 and 2): Land...................................................... 1,032,000 Buildings, improvements and related personal property..... 5,694,542 ---------- 6,726,542 Less accumulated depreciation............................. (961,648) 5,764,894 ---------- ---------- Total Assets...................................... $6,774,275 ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Accounts payable.......................................... $ 61,374 Accrued and other liabilities: Property taxes............................................ $ 61,027 Tenant security deposits.................................. 63,909 Interest.................................................. 38,503 Unearned rental collections............................... 42,995 Other..................................................... 15,181 221,615 ---------- Mortgage note payable (Note 2)............................ 4,738,782 Partners' Capital (Deficit) (Note 3): General partner........................................... (3,894) Limited partners (75 units issued and outstanding)........ 1,726,398 1,722,504 ---------- ---------- Total Liabilities and Partners' Capital........... $6,744,275 ==========
See notes to financial statements F-26 1148 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 ---------- ---------- Revenues: Rentals................................................... $1,723,740 $1,610,896 Other income.............................................. 100,696 134,554 ---------- ---------- Total revenues......................................... 1,824,436 1,745,450 Expenses: Operating................................................. 294,010 271,952 Administrative............................................ 66,681 51,030 Property management fees (Note 4)......................... 91,253 87,451 Advertising and rental incentives......................... 80,013 55,620 Maintenance............................................... 277,823 148,239 Depreciation.............................................. 246,113 224,372 Amortization of deferred charges.......................... 15,350 15,360 Interest.................................................. 463,814 467,470 Property taxes............................................ 122,055 114,005 Insurance................................................. 38,295 35,406 ---------- ---------- Total expenses......................................... 1,695,407 1,470,905 ---------- ---------- Income From Property Operations............................. 129,029 274,545 Interest Income............................................. 45,215 26,177 ---------- ---------- Net Income (Note 5)......................................... $ 174,244 $ 300,722 ========== ========== Net Income Allocated to General Partner (1%)................ $ 1,742 $ 3,007 Net Income Allocated to Limited Partners (99%).............. 172,502 297,715 ---------- ---------- $ 174,244 $ 300,722 ========== ========== Net Income Per Limited Partnership Unit -- Based on 75 weighted average limited partnership units during the years ended December 31, 1995 and 1994...... $ 2,300 $ 3,970 ========== ==========
See notes to financial statements. F-27 1149 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 1995 AND 1994
LIMITED PARTNERSHIP GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL ----------- ------- ---------- ---------- Partners' Capital, December 31, 1993......... 75 $ 910 $2,201,931 $2,202,841 Partners' distributions.................... -- (5,553) (549,750) (555,303) Net income for the year ended December 31, 1994.................................... -- 3,007 297,715 300,722 ------ ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1994....................................... 75 (1,636) 1,949,896 1,948,260 Partners' distributions.................... -- (4,000) (396,000) (400,000) Net income for the year ended December 31, 1995.................................... -- 1,742 172,502 174,244 ------ ------- ---------- ---------- Partners' Capital (Deficit), December 31, 1995....................................... 75 $(3,894) $1,726,398 $1,722,504 ====== ======= ========== ==========
See notes to financial statements. F-28 1150 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 --------- --------- Cash Flows From Operating Activities: Net income................................................ $ 174,244 $ 300,722 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 246,113 224,372 Amortization of deferred charges....................... 15,350 15,360 Change in operating assets and liabilities: Due from affiliate of general partner................ -- 157,907 Restricted cash...................................... (13,329) 2,798 Accounts receivable.................................. 1,712 (590) Prepaid expenses..................................... (327) (2,422) Escrow deposits for taxes and insurance.............. (2,134) (11,573) Other assets......................................... -- 1,070 Restricted escrows................................... (30,676) (68,800) Accounts payable..................................... 31,775 11,120 Accrued property taxes............................... 4,717 3,153 Tenant security deposits liability................... 8,724 1,807 Accrued interest..................................... (318) (289) Unearned rental collections.......................... (9,967) 34,081 Other liabilities.................................... 6,311 (1,894) --------- --------- Net cash provided by operating activities......... 432,195 666,822 --------- --------- Cash Flows From Investing Activities -- Property improvements and replacements.................... (203,533) (93,275) --------- --------- Cash Flows From Financing Activities: Principal payments on mortgage notes payable.............. (39,195) (35,568) Partners' distributions................................... (400,000) (555,303) --------- --------- Net cash used in financing activities............. (439,195) (590,871) --------- --------- Net Decrease in Cash........................................ (210,533) (17,324) Cash, Beginning of Year..................................... 769,194 786,518 --------- --------- Cash, End of Year........................................... $ 558,661 $ 769,194 ========= ========= Supplemental Disclosure of Cash Flow Information -- Cash paid during the year for interest......................... $ 464,132 $ 467,759 ========= =========
See notes to financial statements. F-29 1151 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Cedar Tree Investors Limited Partnership (A Kansas Limited Partnership) was formed to acquire, own and operate Cedar Tree Apartments, a 344-unit multifamily residential complex located in Shawnee, Kansas. The general partner of the Partnership is United Investors Real Estate, Inc., a Delaware corporation. Basis of Accounting The accompanying financial statements of the Partnership are prepared on the accrual basis and, therefore, revenue is recorded as earned and costs and expenses are recorded as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Cash and cash equivalents includes cash on hand and in banks, money market funds and certificates of deposit with original maturities of less than three months. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are considered restricted cash. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Income Taxes For income tax purposes, the Partnership reports revenue and costs and expenses on the accrual method. No income tax provisions have been shown in the accompanying statements of operations since the partners are taxed in their individual capacities. Apartment Properties Apartment properties are stated at cost less accumulated depreciation. Depreciation is computed using straight-line methods over estimated useful lives of 15 to 40 years for buildings and improvements and 5 to 12 years for furniture and fixtures. During 1995, the Partnership adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of FASB No. 121 had no effect on the Partnership's financial statements. Deferred Charges Deferred charges consist of loan costs which are amortized over the terms of the related notes. F-30 1152 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Advertising The Partnership expenses the cost of advertising as incurred. Advertising expense, included in operating expenses, was $18,647 and $17,759 for the years ended December 31, 1995 and 1994, respectively. Fair Value In 1995, the Partnership implemented Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. The carrying amount of the Partnership's cash and cash equivalents approximates fair value due to short-term maturities. The Partnership estimates the fair value of its fixed rate mortgages by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership. Reclassifications Certain reclassifications of prior year balances have been made to conform to the current year presentation. 2. MORTGAGE NOTE PAYABLE The mortgage note payable consists of a 10-year nonrecourse note collateralized by Cedar Tree Apartments, payable in monthly installments of $41,944, including interest. The interest rate is fixed at 9.75% per year. Scheduled maturities of principal are as follows:
YEAR ENDING DECEMBER 31, AMOUNT ------------ ---------- 1996..................................................... $ 43,192 1997..................................................... 47,597 1998..................................................... 52,450 1999..................................................... 57,799 2000..................................................... 63,693 Thereafter............................................... 4,474,051 ---------- Total.......................................... $4,738,782 ==========
The estimated fair value of the Partnership's aggregate debt is approximately $5.1 million. This value represents a general approximation of possible value and is not necessarily indicative of the amounts the Partnership may pay in actual market transactions. 3. PARTNERS' EQUITY Allocations of Profits and Losses In accordance with the partnership agreement, all profits and losses are to be allocated 1% to the general partner and 99% to the limited partners. Distributions The Partnership allocates distributions 1% to the general partner and 99% to the limited partners. Subsequent to December 31, 1995, the Partnership paid a distribution to the partners of $100,000 on February 26, 1996. F-31 1153 CEDAR TREE INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. RELATED PARTY TRANSACTIONS During the years ended December 31, 1995 and 1994, the Partnership paid the following amounts to affiliates of the general partner:
1995 1994 ------- ------- Property management fees................................. $91,253 $87,451 Reimbursement of expenses................................ 15,000 10,000
The Partnership insures Cedar Tree Apartments under a master policy through an agency and insurer unaffiliated with the general partner. An affiliate of the general partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the general partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the general partner by virtue of the agent's obligations is not significant. 5. PARTNER TAX INFORMATION The following is a reconciliation between net income as reported in the financial statements and Federal taxable income allocated to the partners in the Partnership's information returns for the years ended December 31, 1995 and 1994:
1995 1994 -------- -------- Net income as reported................................. $174,244 $300,722 Add (deduct): Deferred revenue..................................... (9,968) 34,081 Depreciation differences............................. (4,330) (9,118) -------- -------- Federal taxable income................................. $159,946 $325,685 ======== ======== Federal taxable income per limited partnership unit.... $ 2,111 $ 4,299 ======== ========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets at December 31, 1995 and 1994:
1995 1994 ---------- ---------- Net assets as reported.............................. $1,722,504 $1,948,260 Differences in basis of assets and liabilities: Deferred revenue.................................. 42,994 52,962 Accumulated depreciation.......................... (25,556) (21,226) Syndication costs................................. 213,094 213,094 ---------- ---------- Net assets -- tax basis............................. $1,953,036 $2,193,090 ========== ==========
F-32 1154 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 1155 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 1156 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 September , 1998 A-3 1157 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CHAPEL HILL, LIMITED 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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 apartment properties to holding an interest in our large portfolio of properties. - 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 1158 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-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-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 Chapel Hill, Limited.................................... 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-29 Expected Benefits of the Offer............... S-30 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-35 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-36 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-41 General...................................... S-41 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-57 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-58 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 1159
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 1160 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 Chapel Hill, Limited. 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 1161 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 1162 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 year 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 $0 per unit 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). 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 small number of apartment 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 1163 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1164 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 100% of 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? 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: 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 1165 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 1166 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. 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. 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 5 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. 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 S-7 1167 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. 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. Although your partnership did not make any distributions in 1998, it might make distributions in the future. 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 Code. The particular tax consequences to you of the exchange 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 small number of apartment 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. S-8 1168 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 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 S-9 1169 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 1170 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, 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. 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 S-11 1171 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 3.85% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 1172 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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). Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 1173 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 1174 - 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 legal fees and expenses in connection therewith. We will 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 S-15 1175 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 own 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 S-16 1176 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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 Consideration 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-1 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 is not subject to such limitations. S-17 1177 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $48,000 annually of your partnership and may also receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $116,896 in 1996, $119,469 in 1997 and $61,949 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 Your Partnership and its Property. Chapel Hill, Limited is a Tennessee limited partnership which was formed on April 20, 1984 for the purpose of owning and operating a small number of apartment properties located in Indianapolis, Indiana, known as "Chapel Hill Apartments" and "Chapelwood Apartments." In 1984, it completed a private placement of units that raised net proceeds of approximately $4,888,000. Chapel Hill Apartments consists of 148 apartment units and Chapelwood Apartments consists of 140 apartment units. Your partnership has no employees. Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. 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 S-18 1178 of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on July 1, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding on Chapel Hill Apartments of $3,511,739, payable to Marine Midland Bank, Bank of America and FNMA, which bears interest at a rate of 7.60%. Such mortgage debt is due November 2002. Your partnership also has a second mortgage note outstanding on the property of $124,785, on the same terms as the current Chapel Hill Apartments mortgage note. There is also a mortgage note on Chapelwood Apartments, the balance of which is $3,638,777, as of June 30, 1998. The note is payable to Marine Midland Bank, Bank of America and FNMA, bears interest at 7.60% and is due November 2002. Chapelwood Apartments also secures a second mortgage note with a balance of $129,300 which has the same terms as the first mortgage. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1179 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 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 1180
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 1181 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 1182
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 1183 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 1184 SUMMARY FINANCIAL INFORMATION OF CHAPEL HILL, LIMITED The summary financial information of Chapel Hill, Limited for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Chapel Hill, Limited for the years ended December 31, 1997 and 1996, 1995, 1994 and 1993 is based on 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 of Your Partnership" included herein. See "Index to Financial Statements." CHAPEL HILL, LIMITED
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, --------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------------ ------------ ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............. $ 1,231,112 $ 1,181,549 $ 2,414,060 $ 2,295,793 $ 2,326,215 $ 2,237,699 $ 2,139,393 Net Income/(Loss).......... (50,349) 112,352 (65,397) (141,794) (308,629) (172,070) (267,186) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation............. 1,759,935 2,067,724 1,932,461 2,248,160 2,581,477 2,808,349 3,197,960 Total Assets............. 3,008,111 3,304,434 3,119,724 3,348,394 3,662,018 4,086,115 4,416,791 Mortgage Notes Payable, including Accrued Interest................. 7,094,216 7,250,104 7,208,979 7,356,494 7,502,438 7,636,184 7,758,752 Partners' Capital/(Deficit)........ (4,254,360) (4,023,091) (4,204,011) (4,135,443) (3,991,181) (3,680,506) (3,508,436)
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 YOUR 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 $0
S-25 1185 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. 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 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 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, 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 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. S-26 1186 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 Code. 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 therefore 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 apartment 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 S-27 1187 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25, and the 1998 distributions of $0 with respect to your units, 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 S-28 1188 AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently own a 3.85% limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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). S-29 1189 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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 S-30 1190 % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. Your Partnership has not paid any distributions on your units since the inception of your partnership. - 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. Your Partnership has not paid any distributions on your units since the inception of your partnership. - 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 1191 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 and the expiration of the offer. See "Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. S-32 1192 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 1193 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. 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 S-34 1194 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." 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. 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. S-35 1195 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, (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 9:00 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 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, Denver, Colorado 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. S-36 1196 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-37 1197 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 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 S-38 1198 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 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 S-39 1199 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-40 1200 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. 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. DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. S-41 1201 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 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 S-42 1202 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 payment. 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 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 S-43 1203 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-44 1204 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-45 1205 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-46 1206 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-47 1207 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-48 1208 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-49 1209 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 1210 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-51 1211 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 1212 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 1213 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 1214 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 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, a third party expert, 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 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25, and the 1998 distributions of $0 with respect to your units, 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 S-55 1215 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 Consideration.................................... $ Alternatives: Prices on Secondary Market................................ Not available Estimated Liquidation Proceeds............................ $
S-56 1216 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 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-1 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 "-- Fairness Opinion -- 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-57 1217 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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 September 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 S-58 1218 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 property was 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 S-59 1219 value of the partnership's property 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 property 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 property 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'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-1. 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 $9,000 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-60 1220 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 Tennessee law for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Chapel Hill Apartments and Chapelwood Partnership owns interests (either directly or through Apartments. 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 July 1, 2015. Agreement") or as provided by law. See "Description of 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 and operate The purpose of the AIMCO Operating Partnership is to your partnership's property. Subject to restrictions conduct any business that may be lawfully conducted by contained in your partnership's agreement of limited a limited partnership organized pursuant to the partnership, your partnership may perform all act Delaware Revised Uniform Limited Partnership Act (as necessary or appropriate in connection therewith and amended from time to time, or any successor to such reasonably related thereto, including acquiring statute) (the "Delaware Limited Partnership Act"), additional real or personal property, borrowing money provided that such business is to be conducted in a 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-61 1221 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 65 units for cash and time to the limited partners and to other persons, and notes 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. 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 acquire property or funds or other assets to its subsidiaries or other services from, and have other transactions with persons persons in which it has an equity investment, and such who are partners or who are affiliates of partners. Any persons may borrow funds from the AIMCO Operating and all compensation paid to such persons in connection Partnership, on terms and conditions established in the with services performed for your partnership must be sole and absolute discretion of the general partner. To commensurate with that which would be paid to an the extent consistent with the business purpose of the independent person for similar services and all AIMCO Operating Partnership and the permitted agreements must be in writing. The partnership may not activities of the general partner, the AIMCO Operating make loans to any partners but the general partners may Partnership may transfer assets to joint ventures, make loans to your partnership; provided that the limited liability companies, partnerships, interest and fees received by the general partners in corporations, business trusts or other business connection with such loans are not in excess of the entities in which it is or thereby becomes a amounts which would be charged by an unrelated bank and participant upon such terms and subject to such the general partners do not receive a finder's or conditions consistent with the AIMCO Operating Part- placement fee or commission. 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 your partnership business, whether full power and authority to borrow money on behalf of secured or unsecured. the AIMCO Operating Partnership. The AIMCO Operating 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.
S-62 1222 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 the limited partners to receive, for any with a statement of the purpose of such demand and at proper purpose, the name and address of each limited such OP Unitholder's own expense, to obtain a current partner and the number of units owned by each limited list of the name and last known business, residence or partners. Your partnership furnishes such information mailing address of the general partner and each other to any limited partner requesting the same in writing, OP Unitholder. upon payment of all costs and expenses of your partnership in connection with the preparation and forwarding of such information.
Management Control The general partner of your partnership manages and All management powers over the business and affairs of controls your partnership and all aspects of its the AIMCO Operating Partnership are vested in AIMCO-GP, business. The general partner has full, exclusive and Inc., which is the general partner. No OP Unitholder complete authority and discretion in the management and has any right to participate in or exercise control or control of the business and the activities and management power over the business and affairs of the operations of your partnership. In the exercise of its AIMCO Operating Partnership. The OP Unitholders have authority, it makes all decisions affecting the conduct the right to vote on certain matters described under of the business of your partnership. Limited partners "Comparison of Ownership of Your Units and AIMCO OP may not take part in the management of the business, Units -- Voting Rights" below. The general partner may affairs and operations of your partnership, transact not be removed by the OP Unitholders with or without any business for your partnership, have any power, cause. right or authority to enter into any agreement, execute or sign documents for, make representation on behalf of In addition to the powers granted a general partner of nor to otherwise act so as to bind your partnership in a limited partnership under applicable law or that are any manner. 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, in 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 by any of them which are reasonably believed judgment or mistakes of fact or law of any act or by them to be within the scope of the authority omission if the general partner acted in good faith. conferred on them by your partnership's agreement of The AIMCO Operating Partnership Agreement provides for limited partnership, excepting only acts of malfea- indemnification of AIMCO, or any director or officer of sance, gross negligence or actual misrepresentation. In AIMCO (in its capacity as the previous general partner addition, the general partner and its affiliates are of the AIMCO Operating Partnership), the general entitled to indemnification by your partnership for any partner, any officer or director of general partner or and all acts performed by them in the good faith belief the AIMCO Operating Partnership and such other persons that the act or omission was in the best interests of as the general partner may designate from and against your partnership and which are reasonably within the all losses, claims, damages, liabilities, joint or scope of the authority conferred upon them by your several, expenses (including legal fees), fines, partnership's agreement of limited partnership or by settlements and other amounts incurred in connection your partnership, excepting only acts of malfeasance, with any actions relating to the operations of the gross negligence or actual misrepresentation; provided, AIMCO Operating Partnership, as set forth in the AIMCO however, that such indemnity will be paid out of, and Operating Partnership Agreement. The Delaware Limited only to the extent of, partnership assets. Partnership Act provides that subject to the standards and restrictions, if any, set forth in its
S-63 1223 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 for cause and elect a successor general partner affairs of the AIMCO Operating Partnership. The general upon a vote of the limited partners owning a majority partner may not be removed as general partner of the of the outstanding units. A general partner may not AIMCO Operating Partnership by the OP Unitholders with transfer, assign, sell, withdraw or otherwise dispose or without cause. Under the AIMCO Operating Partnership of its interest unless it obtains the prior written Agreement, the general partner may, in its sole consent of those persons owning more than 50% of the discretion, prevent a transferee of an OP Unit from units and satisfies other conditions set forth in your becoming a substituted limited partner pursuant to the partnership's agreement of limited partnership. Such AIMCO Operating Partnership Agreement. The general consent is also necessary for the approval of a new partner may exercise this right of approval to deter, general partner. A limited partner may not transfer his delay or hamper attempts by persons to acquire a interests without the written consent of the general controlling interest in the AIMCO Operating Partner- partner which may be withheld at the sole discretion of ship. Additionally, the AIMCO Operating Partnership the general 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 to change the name in the AIMCO Operating Partnership Agreement, whereby and location of the principal place of business of your the general partner may, without the consent of the OP partnership, change the name or the residence of a Unitholders, amend the AIMCO Operating Partnership partner, substitute a limited partner, correct an error Agreement, amendments to the AIMCO Operating in your partnership's agreement of limited part- Partnership Agreement require the consent of the nership and as required by law. Amendments of specified holders of a majority of the outstanding Common OP provisions of your partnership's agreement of limited Units, excluding AIMCO and certain other limited partnership may be made only with the prior written exclusions (a "Majority in Interest"). Amendments to consent of all partners. Other amendments must be the AIMCO Operating Partnership Agreement may be approved by the limited partners owning more than 50% proposed by the general partner or by holders of a of the units. Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives $48,000 annually. Moreover, the general capacity as general partner of the AIMCO Operating partner or certain affiliates may be entitled to Partnership. In addition, the AIMCO Operating Part- compensation for additional services rendered. 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-64 1224 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, limited partners are not subject to negligence, no OP Unitholder has personal liability for assessment nor personally liable for any of the debts the AIMCO Operating Partnership's debts and or obligations of your partnership or any of losses of obligations, and liability of the OP Unitholders for your partnership beyond its obligations to contribute the AIMCO Operating Partnership's debts and obligations to the capital of your partnership as specified in your is generally limited to the amount of their invest- partnership's agreement of limited partnership and as ment in the AIMCO Operating Partnership. However, the otherwise provided by law. 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 has fiduciary partnership agreement, Delaware law generally requires responsibilities to your partnership in respect of the a general partner of a Delaware limited partnership to funds and assets of your partnership and will take all adhere to fiduciary duty standards under which it owes actions which may be necessary or appropriate for the its limited partners the highest duties of good faith, proper maintenance and operation of your partnership's fairness and loyalty and which generally prohibit such property in accordance with the provisions of your general partner from taking any action or engaging in partnership's agreement of limited partnership and in any transaction as to which it has a conflict of accordance with applicable laws and regulations. The interest. The AIMCO Operating Partnership Agreement general partner will manage and control the affairs of expressly authorizes the general partner to enter into, your partnership to the best of its abilities and use on behalf of the AIMCO Operating Partnership, a right its best efforts to carry out the business of your of first opportunity arrangement and other conflict partnership as set forth in your partnership's avoidance agreements with various affiliates of the agreement of limited partnership. However, the general AIMCO Operating Partnership and the general partner, on partner may engage in or hold interests in other such terms as the general partner, in its sole and business ventures of every kind and description for its absolute discretion, believes are advisable. The AIMCO own account including, without limitation, ventures Operating Partnership Agreement expressly limits the such as those undertaken by your partnership and the liability of the general partner by providing that the partners shall have no rights in and to such general partner, and its officers and directors will independent business venture or the income and profits not be liable or accountable in damages to the AIMCO derived therefrom. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 1225 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 limitations; dissolve and Units" in the accompanying transactions such as the terminate your partnership; remove Prospectus. So long as any institution of bankruptcy a general partner for cause; and Preferred OP Units are outstand- proceedings, an assignment for the approve or disapprove the sale of ing, in addition to any other vote benefit of creditors and certain all or substantially all of the or consent of partners required by transfers by the general partner of assets of your partnership. law or by the AIMCO Operating its interest in the AIMCO Operating Partnership Agree- Part-
S-66 1226 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS A general partner may cause the ment, the affirmative vote or nership or the admission of a dissolution of the your partnership consent of holders of at least 50% successor general partner. by retiring when there are no of the outstanding Preferred OP remaining general partners unless, Units will be necessary for Under the AIMCO Operating Partner- the limited partners owning more effecting any amendment of any of ship Agreement, the general partner the 50% of the then outstanding the provisions of the Partnership has the power to effect the units elect a new general partner Unit Designation of the Preferred acquisition, sale, transfer, who decides to continue your OP Units that materially and exchange or other disposition of partnership with the approval of adversely affects the rights or any assets of the AIMCO Operating the limited partners owning more preferences of the holders of the Partnership (including, but not than 50% of the then outstanding Preferred OP Units. The creation or limited to, the exercise or grant units. 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- Your partnership may, but is not $ per Preferred OP Unit; tribute quarterly all, or such obligated to, make current provided, however, that at any time portion as the general partner may distributions out of its cash funds and from time to time on or after in its sole and absolute discretion as the general partner may, in its the fifth anniversary of the issue determine, of Available Cash (as discretion, determine. The date of the Preferred OP Units, the defined in the AIMCO Operating distributions payable to the AIMCO Operating Partnership may Partnership Agreement) generated by partners are not fixed in amount adjust the annual distribution rate the AIMCO Operating Partnership and depend upon the operating on the Preferred OP Units to the during such quarter to the general 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. Your of five years, and (ii) the annual established by the general partner partnership has not made dividend rate on the most recently with respect to such quarter, in distributions in the past five issued AIMCO non-convertible accordance with their respective years and is not projected to make preferred stock which ranks on a interests in the AIMCO Operating distributions in 1998. 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-67 1227 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 his There is no public market for the There is no public market for the units to any person and be Preferred OP Units and the OP Units. The AIMCO Operating Part- substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the such person if: (1) the interest on any securities exchange. The transferability of the OP Units. being acquired by the assignee Preferred OP Units are subject to Until the expiration of one year consists of an integral multiple of restrictions on transfer as set from the date on which an OP half units, (2) a written forth in the AIMCO Operating Unitholder acquired OP Units, assignment has been duly executed Partnership Agreement. subject to certain exceptions, such and acknowledged by the assignor OP Unitholder may not transfer all and assignee, (3) the written Pursuant to the AIMCO Operating or any portion of its OP Units to approval of the general partner Partnership Agreement, until the any transferee without the consent which may be withheld in the sole expiration of one year from the of the general partner, which and absolute discretion of the date on which a holder of Preferred consent may be withheld in its sole general partner has been granted, OP Units acquired Preferred OP and absolute discretion. After the (4) the assignor or the assignee Units, subject to certain expiration of one year, such OP pays a transfer fee, (5) the exceptions, such holder of Unitholder has the right to transfer will not result in a Preferred OP Units may not transfer transfer all or any portion of its termination of your partnership for all or any portion of its Pre- OP Units to any person, subject to tax purposes and (6) the assignor ferred OP Units to any transferee the satisfaction of certain and assignee have complied with without the consent of the general conditions specified in the AIMCO such other conditions as set forth partner, which consent may be Operating Partnership Agreement, in your partnership's agreement of withheld in its sole and absolute including the general partner's limited partnership. discretion. After the expiration of right of first refusal. See There are no redemption rights one year, such holders of Preferred "Description of OP Units -- associated with your 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 becoming a
S-68 1228 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS AIMCO Operating Partnership Agree- holder of Common OP Units, an OP ment, including the general Unitholder has the right, subject partner's right of first refusal. to the terms and conditions of the AIMCO Operating Partnership After a one-year holding period, a Agreement, to require the AIMCO holder may redeem Preferred OP Operating Partnership to redeem all Units and receive in exchange or a portion of the Common OP Units therefor, at the AIMCO Operating held by such party in exchange for Partnership's option, (i) subject a 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 1229 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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 consideration 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $48,000 annually from your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The Property Manager received management fees of $116,896 in 1996, $119,469 in 1997 and $61,949 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's 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'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 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-70 1230 YOUR PARTNERSHIP GENERAL Your partnership is a Tennessee limited partnership which raised net proceeds of approximately $4,888,000 in 1984 through a private offering. The promoter for the private offering of your partnership was Freeman Properties, Inc. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 74 limited partners of your partnership and a total of 65 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the small number of apartment properties described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on April 20, 1984 for the purpose of owning and operating a small number of apartment properties located in Indianapolis, Indiana, known as "Chapel Hill Apartments" and "Chapelwood Apartments". There are 148 apartment units in Chapel Hill Apartments consisting of 28 one-bedroom apartments, 80 two-bedroom apartments and 40 three-bedroom apartments. The total rentable square footage is 183,600 square feet and the average annual rent per apartment unit is $7,174. Chapel Hill Apartments had an average occupancy rate of 95.27% in 1996 and 1997. Chapelwood Apartments has 140 apartment units. There are 24 one-bedroom apartments, 32 two-bedroom apartments and 68 three-bedroom apartments. The total rentable square footage is 220,300 square feet. In 1996, Chapelwood Apartments had an average occupancy rate of approximately of 90.71% and 90.71% in 1997. The average annual rent per apartment unit is $8,566. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $116,896, $119,469 and $61,949, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on July 1, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. S-71 1231 An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,511,739, payable to Marine Midland Bank, Bank of America and FHMA, which bears interest at a rate of 7.60%. The mortgage debt is due November 2002. Your partnership also has a second mortgage note outstanding on the property of $124,785, on the same terms as the current Chapel Hill Apartments mortgage note. There is also a mortgage note on Chapelwood Apartments, the balance of which is $3,638,777, as of June 30, 1998. The note is payable to Marine Midland Bank, Bank of America and FNMA, bears interest at 7.60% and is due November 2002. Chapelwood Apartments also secures a second mortgage note with a balance of $129,300 which has the same terms as the first mortgage. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. S-72 1232 SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. Below is selected financial information for Chapel Hill, Limited taken from the financial statements described above. See "Index to Financial Statements."
CHAPEL HILL, LIMITED ----------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents... $ 347,599 $ 324,710 $ 292,551 $ 224,194 $ 209,734 $ 348,683 $ 239,621 Land & Building............. 9,969,706 9,769,927 9,888,448 9,696,579 9,533,433 9,277,337 9,292,270 Accumulated Depreciation.... (8,209,771) (7,702,203) (7,955,987) (7,448,419) (6,951,956) (6,468,988) (6,094,310) Other Assets................ 900,577 912,000 894,712 876,040 870,807 929,083 979,210 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets....... $ 3,008,111 $ 3,304,434 $ 3,119,724 $ 3,348,394 $ 3,662,018 $ 4,086,115 $ 4,416,791 =========== =========== =========== =========== =========== =========== =========== LIABILITIES AND PARTNERS' DEFICIT Mortgage & Accrued Interest.................. $47,094,216 $ 7,250,104 $ 7,208,979 $ 7,356,494 $ 7,502,438 $ 7,636,184 $ 7,758,752 Other Liabilities........... 168,256 77,420 114,756 127,343 150,761 130,437 166,475 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities...... 7,262,472 7,327,524 7,323,735 7,483,837 7,653,199 7,766,621 7,925,227 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)................. $(4,254,360) $(4,023,091) $(4,204,011) $(4,135,443) $(3,991,181) $(3,680,506) $(3,508,436) =========== =========== =========== =========== =========== =========== ===========
CHAPEL HILL, LIMITED ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue..................... $1,156,975 $1,104,642 $2,259,379 $2,147,082 $2,170,553 $2,086,094 $2,074,155 Other Income....................... 74,137 76,907 154,681 148,711 155,662 151,605 65,238 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. 1,231,112 1,181,549 2,414,060 2,295,793 2,326,215 2,237,699 2,139,393 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 576,703 423,632 1,052,313 960,238 1,139,355 902,662 893,595 General & Administrative........... 53,903 40,293 86,403 91,477 89,073 116,713 71,129 Depreciation....................... 253,784 253,784 507,568 496,463 482,968 472,534 528,745 Interest Expense................... 283,932 292,305 674,526 675,042 688,381 674,266 685,068 Property Taxes..................... 113,139 59,183 158,647 214,367 235,067 243,594 228,042 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ 1,281,461 1,069,197 2,479,457 2,437,587 2,634,844 2,409,769 2,406,579 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income......................... $ (50,349) $ 112,352 $ (65,397) $ (141,794) $ (308,629) $ (172,070) $ (267,186) ========== ========== ========== ========== ========== ========== ==========
S-73 1233 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized a net loss of $50,349 for the six months ended June 30, 1998, compared to net income of $112,352 for the six months ended June 30, 1997. The decrease in net income of $162,701, or 144.81% was primarily the result of an increase in operating expenses during 1998. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,231,112 for the six months ended June 30, 1998, compared to $1,181,549 for the six months ended June 30, 1997, an increase of $49,563, or 4.19%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $576,703 for the six months ended June 30, 1998, compared to $423,632 for the six months ended June 30, 1997, an increase of $153,071 or 36.13%. The increase is primarily due to an increase in accrued expenses for the interim period and an increase in repairs and maintenance at both properties. Management expenses totaled $61,949 for the six months ended June 30, 1998, compared to $59,112 for the six months ended June 30, 1997, an increase of $2,837, or 4.80%. General and Administrative Expenses General and administrative expenses totaled $53,903 for the six months ended June 30, 1998 compared to $40,293 for the six months ended June 30, 1997, an increase of $13,610 or 33.78%. The increase is primarily due to the timing of audit fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $283,932 for the six months ended June 30, 1998, compared to $292,305 for the six months ended June 30, 1997, $8,534 for the six months ended June 30, 1997, for a decrease of $920. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $65,397 for the year ended December 31, 1997, compared to a net loss of $141,794 for the year ended December 31, 1996. The increase in net income of $76,397, or 53.88% was primarily the result of an increase in rental revenues and a decrease in property taxes offset by an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. S-74 1234 Revenues Rental and other property revenues from the partnership's property totaled $2,414,060 for the year ended December 31, 1997, compared to $2,295,793 for the year ended December 31, 1996, an increase of $118,267, or 5.15%. The increase is primarily due to increases in the average occupancy levels and the rental rates at both properties. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $1,052,313 for the year ended December 31, 1997, compared to $960,238 for the year ended December 31, 1996, an increase of $92,075 or 9.59%. The increase is due to increases in advertising and personnel expenses. Management expenses totaled $119,469 for the year ended December 31, 1997, compared to $116,896 for the year ended December 31, 1996, an increase of $2,573, or 2.20%. General and Administrative Expenses General and administrative expenses totaled $86,403 for the year ended December 31, 1997 compared to $91,477 for the year ended December 31, 1996, a decrease of $5,074 or 5.55%. The decrease is primarily due to the timing of audit fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $674,526 for the year ended December 31, 1997, compared to $675,042 for the year ended December 31, 1996, a decrease of $516, or 0.08%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $141,794 for the year ended December 31, 1996, compared to a net loss of $308,629 for the year ended December 31, 1995. The increase in net income of $166,835, or 54.06% was primarily the result of a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,295,793 for the year ended December 31, 1996, compared to $2,326,215 for the year ended December 31, 1995, a decrease of $30,422, or 1.31%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $960,238 for the year ended December 31, 1996,compared to $1,139,355 for the year ended December 31, 1995, a decrease of $179,117 or 15.72%. The decrease is primarily due to a decrease in maintenance expense due to an exterior painting project at one of the properties in 1995. Management expenses totaled $116,896 for the year ended December 31, 1996, compared to $115,300 for the year ended December 31, 1995, an increase of $1,596, or 1.38%. General and Administrative Expenses General and administrative expenses totaled $91,477 for the year ended December 31, 1996 compared to $89,073 for the year ended December 31, 1995, an increase of $2,404 or 2.70%. S-75 1235 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $675,042 for the year ended December 31, 1996, compared to $688,381 for the year ended December 31, 1995, a decrease of $13,339, or 1.94%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $347,599 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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, in damages or otherwise to your partnership or any limited partner for any acts performed by any of them which are reasonably believed by them to be within the scope of the authority conferred on them by your partnership's agreement of limited partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation. 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 owned by AIMCO. See "Conflicts of Interest." The general partner and its affiliates are entitled to indemnification by your partnership for any and all acts performed by them in the good faith belief that the act or omission was in the best interests of your partnership and which are reasonably within the scope of the authority conferred upon them by your partnership's agreement of limited partnership or by your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation; provided, however, that such indemnity will be paid out of and only to the extent of partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions Your partnership has not made a distribution within the last five years. The original cost per unit was $65,173. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions S-76 1236 (excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0 0 1995......................... 0 0 0 1996......................... 0 0 0 1997......................... 1 1.86% 1 1998 (through June 30)....... 1 1.86% 1
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP AIMCO currently owns a 3.85% limited partnership interest in your partnership. Except as described above, Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994............................................ 78,527 1995............................................ 107,445 1996............................................ 81,048 1997............................................ 84,896 1998 (through June 30)..........................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995............................................ 0 1996............................................ 116,896 1997............................................ 119,469 1998 (through June 30).......................... 61,949
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 company paid to the property manager or AIMCO and its affiliates. S-77 1237 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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. S-78 1238 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet -- Income Tax Basis as of June 30, 1998 -- (unaudited)....................................... F-2 Condensed Statements of Operations -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)... F-3 Condensed Statements of Cash Flows -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)... F-4 Notes to Condensed Financial Statements -- Income Tax Basis..................................................... F-5 Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1997 and 1996 (unaudited).......................................... F-7 Statements of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1997 and 1996 (unaudited)............................. F-8 Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1997 and 1996 (unaudited).............. F-9 Notes to Financial Statements -- Income Tax Basis........... F-10 Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1996 and 1995 (unaudited).......................................... F-14 Statements of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1996 and 1995 (unaudited)............................. F-15 Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1996 and 1995 (unaudited).............. F-16 Notes to Financial Statements -- Income Tax Basis (unaudited)............................................... F-17
F-1 1239 CHAPEL HILL CONDENSED BALANCE SHEET INCOME TAX BASIS (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 347,599 Receivables and Deposits.................................... 49,713 Restricted Escrows.......................................... 313,559 Syndication Fees............................................ -- Other Assets................................................ 537,305 Investment Property: Land...................................................... $ 375,000 Building and related personal property.................... 9,594,707 ----------- 9,969,707 Less: Accumulated depreciation............................ (8,209,771) 1,759,936 ----------- ----------- Total Assets...................................... $ 3,008,112 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ -- Other Accrued Liabilities................................... (168,256) Property taxes payable...................................... -- Tenant security deposits.................................... -- Notes Payable............................................... (7,094,216) Partners' Capital........................................... 4,254,360 ----------- Total Liabilities and Partners' Capital........... $(3,008,112) ===========
F-2 1240 CHAPEL HILL CONDENSED STATEMENTS OF OPERATIONS INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------- 1998 1997 ----------- ----------- Revenues: Rental Income............................................. $(1,156,975) $(1,104,642) Other Income.............................................. (74,137) (76,907) (Gain) Loss on Disposal of Property....................... -- -- Casualty Gain/Loss........................................ -- -- ----------- ----------- Total Revenues.................................... (1,231,112) (1,181,549) Expenses: Operating Expenses........................................ 576,703 423,632 General and Administrative Expenses....................... 53,903 40,293 Depreciation Expense...................................... 253,784 253,784 Interest Expense.......................................... 283,932 292,305 Property Tax Expense...................................... 113,139 59,183 ----------- ----------- Total Expenses.................................... 1,281,461 1,069,197 (Income) Loss from Operations............................... 50,349 (112,352) Extraordinary Gain on Early Extinguishment of Debt.......... -- -- Loss on Sale of Investment Property......................... -- -- Casualty Gain............................................... -- -- ----------- ----------- Net (Income) Loss................................. $ 50,349 $ (112,352) =========== ===========
F-3 1241 CHAPEL HILL CONDENSED STATEMENTS OF CASH FLOWS INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ---------------------- 1998 1997 --------- ---------- Operating Activities: Net Income (loss)......................................... $ (50,349) $ 112,352 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 253,784 253,784 Loss on Casualty event................................. -- -- Extraordinary loss on refinancing...................... -- -- Changes in accounts: Receivables and deposits and other assets............ 1,055 (29,726) Accounts Payable and accrued expenses................ 53,500 (49,923) --------- ---------- Net cash provided by (used in) operating activities...................................... 257,990 286,487 Investing Activities: Property improvements and replacements.................... (81,259) (73,348) Property improvements -- NON-CASH......................... -- -- Proceeds from sale of investments......................... -- -- Collections on notes receivable........................... -- -- Net (increase)/decrease in restricted escrows............. (6,920) (6,234) Net insurance proceeds received from casualty events...... -- -- Dividends received........................................ -- -- --------- ---------- Net cash provided by (used in) investing activities...................................... (88,179) (79,582) Financing Activities: Payments on mortgage...................................... (114,763) (106,389) Repayment of mortgage..................................... -- -- Prepayment penalties...................................... -- -- Proceeds from refinancing of mortgage..................... -- -- Payment of Loan Costs..................................... -- -- Partners' Distributions................................... -- -- --------- ---------- Net cash provided by (used in) financing activities...................................... (114,763) (106,389) --------- ---------- Net increase (decrease) in cash and cash equivalents..................................... 55,048 100,516 Cash and cash equivalents at beginning of year.............. 292,551 224,194 --------- ---------- Cash and cash equivalents at end of period.................. $ 347,599 $ 324,710 ========= ==========
F-4 1242 CHAPEL HILL LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Chapel Hill Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 1243 CHAPEL HILL, LIMITED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT ACCOUNTANTS' COMPILATION REPORT THEREON) F-6 1244 CHAPEL HILL, LIMITED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT) ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 292,551 $ 224,194 Receivables and deposits.................................... 109,714 91,126 Restricted escrows (Note B)................................. 306,639 294,035 Other assets................................................ 478,359 490,879 Investment properties (Note C): Land...................................................... 375,000 375,000 Buildings and related personal property................... 9,513,448 9,321,579 ----------- ----------- 9,888,448 9,696,579 Less accumulated depreciation............................. (7,955,987) (7,448,419) ----------- ----------- 1,932,461 2,248,160 ----------- ----------- $ 3,119,724 $ 3,348,394 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 22,897 $ 33,228 Tenant security deposit liabilities....................... 44,439 47,698 Other liabilities......................................... 47,420 46,417 Mortgage notes payable (Note C)........................... 7,208,979 7,356,494 (4,204,011) (4,135,443) ----------- ----------- Partners' deficit........................................... $ 3,119,724 $ 3,348,394 =========== ===========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-7 1245 CHAPEL HILL, LIMITED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 2,259,379 $ 2,147,082 Other income.............................................. 154,681 148,711 ----------- ----------- Total revenues.................................... 2,414,060 2,295,793 ----------- ----------- Expenses: Operating (Note D)........................................ 1,052,313 960,238 General and administrative (Note D)....................... 86,403 91,477 Depreciation.............................................. 507,568 496,463 Interest.................................................. 674,526 675,042 Property taxes............................................ 158,647 214,367 ----------- ----------- Total expenses.................................... 2,479,457 2,437,587 ----------- ----------- Net loss.................................................... (65,397) (141,794) Distributions to partners................................... (3,171) (2,468) Partners' deficit at beginning of year...................... (4,135,443) (3,991,181) ----------- ----------- Partners' deficit at end of year............................ $(4,204,011) $(4,135,443) =========== ===========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-8 1246 CHAPEL HILL, LIMITED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Cash flows from operating activities: Net loss.................................................. $ (65,397) $(141,794) Adjustments, to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 507,568 496,463 Amortization of discounts and loan costs............... 94,022 79,854 Change in accounts: Receivables and deposits............................. (18,588) (5,147) Other assets......................................... (12,130) (1,354) Accounts payable..................................... (10,331) (35,585) Tenant security deposit liabilities.................. (3,259) 2,997 Other liabilities.................................... 1,003 9,170 --------- --------- Net cash provided by operating activities......... 492,888 404,604 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (191,869) (163,146) Deposits to restricted escrows............................ (12,604) (12,379) Receipts from restricted escrows.......................... -- 33,405 --------- --------- Net cash used in investing activities............. (204,473) (142,120) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (216,887) (201,062) Distributions to partners................................. (3,171) (2,468) --------- --------- Net cash used in financing activities............. (220,058) (203,530) --------- --------- Net increase in cash and cash equivalents................... 68,357 58,954 Cash and cash equivalents at beginning of year.............. 224,194 165,240 --------- --------- Cash and cash equivalents at end of year.................... $ 292,551 $ 224,194 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 580,503 $ 596,327 ========= =========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-9 1247 CHAPEL HILL, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 AND 1996 (UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Chapel Hill, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated January 24, 1975. The Partnership owns and operates Chapel Woods Townhouses a 140 townhouse complex, and Chapel Hill Apartments, a 148 unit apartment complex, both located in Indianapolis, Indiana. The Partnership's Managing General Partner is Davidson Properties, Inc., an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Basis of Accounting The financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded, as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, and (3) syndication costs are not amortized. On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. Depreciation Depreciation is provided for in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Under generally accepted accounting principles, the cost of depreciable assets would be allocated systematically over their estimated useful lives. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $121,706 and $146,355, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Also included in other assets are syndication costs of $336,142 which are not amortized. F-10 1248 CHAPEL HILL, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) DECEMBER 31, 1997 AND 1996 (UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT) Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. $306,639 $294,035 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $64,840, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $7,265,278 $7,482,165 Second mortgage note payable in interest only monthly installments of $1,609, at a rate of 7.60% with principal due November 2002; collateralized by land and buildings... 254,085 254,085 ---------- ---------- Principal balance at year end............................... 7,519,363 7,736,250 Less unamortized discount................................... (310,384) (379,756) ---------- ---------- $7,208,979 $7,356,494 ========== ==========
F-11 1249 CHAPEL HILL, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) DECEMBER 31, 1997 AND 1996 (UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT) Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998................................................... $ 233,957 1999................................................... 252,370 2000................................................... 272,232 2001................................................... 293,659 2002................................................... 6,467,145 ---------- $7,519,363 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- -------- -------- Management fee......................................... $119,469 $116,896 Partnership administration fee......................... $ 48,000 $ 48,000 Reimbursement for services to affiliates............... $ 36,247 $ 33,048 Construction oversight fee............................. $ 649 $ --
F-12 1250 CHAPEL HILL, LIMITED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT ACCOUNTANTS' COMPILATION REPORT THEREON) F-13 1251 CHAPEL HILL, LIMITED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT) ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 224,194 $ 165,240 Restricted -- tenant security deposits.................... 46,123 44,494 Accounts receivable......................................... 7,640 12,290 Escrow for taxes............................................ 37,363 29,195 Restricted escrows (Note B)................................. 294,035 315,061 Other assets................................................ 490,879 514,261 Investment properties (Note C): Land...................................................... 375,000 375,000 Buildings and related personal property................... 9,321,579 9,158,433 ----------- ----------- 9,696,579 9,533,433 Less accumulated depreciation............................. (7,448,419) (6,951,956) ----------- ----------- 2,248,160 2,581,477 ----------- ----------- $ 3,348,394 $ 3,662,018 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 33,228 $ 67,186 Tenant security deposits.................................. 47,698 44,701 Other liabilities......................................... 46,417 38,874 Mortgage notes payable (Note C)........................... 7,356,494 7,502,438 Partners' deficit........................................... (4,135,443) (3,991,181) ----------- ----------- $ 3,348,394 $ 3,662,018 =========== ===========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-14 1252 CHAPEL HILL, LIMITED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 2,147,082 $ 2,170,553 Other income.............................................. 148,711 155,662 ----------- ----------- Total revenues.................................... 2,295,793 2,326,215 ----------- ----------- Expenses: Operating (Note D)........................................ 646,150 632,400 General and administrative (Note D)....................... 91,477 89,073 Maintenance............................................... 314,088 506,955 Depreciation.............................................. 496,463 482,968 Interest.................................................. 675,042 688,381 Property taxes............................................ 214,367 235,067 ----------- ----------- Total expenses.................................... 2,437,587 2,634,844 ----------- ----------- Net loss.................................................... (141,794) (308,629) Distributions to partners................................... (2,468) (2,046) Partners' deficit at beginning of year...................... (3,991,181) (3,680,506) ----------- ----------- Partners' deficit at end of year............................ $(4,135,443) $(3,991,181) =========== ===========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-15 1253 CHAPEL HILL, LIMITED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT)
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Cash flows from operating activities: Net loss.................................................. $(141,794) $(308,629) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 496,463 482,968 Amortization of discounts and loan costs............... 79,854 77,384 Change in accounts: Restricted cash...................................... (1,629) 6,203 Accounts receivable.................................. 4,650 (1,916) Escrow for taxes..................................... (8,168) 27,475 Other assets......................................... (1,354) -- Accounts payable..................................... (35,585) 37,808 Tenant security deposit liabilities.................. 2,997 (6,916) Other liabilities.................................... 9,170 (10,568) --------- --------- Net cash provided by operating activities......... 404,604 303,809 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (163,146) (256,096) Deposits to restricted escrows............................ (12,379) (12,490) Receipts from restricted escrows.......................... 33,405 20,470 --------- --------- Net cash used in investing activities............. (142,120) (248,116) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (201,062) (186,393) Distributions to partners................................. (2,468) (2,046) --------- --------- Net cash used in financing activities............. (203,530) (188,439) --------- --------- Net increase (decrease) in cash............................. 58,954 (132,746) Cash and cash equivalents at beginning of year.............. 165,240 297,986 --------- --------- Cash and cash equivalents at end of year.................... $ 224,194 $ 165,240 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 596,327 $ 610,998 ========= =========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-16 1254 CHAPEL HILL, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 AND 1995 (UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Chapel Hill, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated January 24, 1975. The Partnerships owns and operates Chapel Woods Townhouses a 140 townhouse complex, and Chapel Hill Apartments, a 148 unit apartment complex, both located in Indianapolis, Indiana. The Partnership's Managing General Partner is Davidson Properties, Inc., an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Basis of Accounting The financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, and (3) syndication costs are not amortized. On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. Depreciation Depreciation is provided for in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Under generally accepted accounting principles, the cost of depreciable assets would be allocated systematically over their estimated useful lives. Other Assets Other assets at December 31, 1996 include deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Also included in other assets are utility deposits and syndication costs which are not amortized. F-17 1255 CHAPEL HILL, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) (UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT) Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in calendar year 1996...................................................... $ -- $ 23,728 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 294,035 291,333 -------- -------- $294,035 $315,061 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $64,840, including interest at 7.60% due November 2002; collateralized by land and buildings...................... $7,482,165 $7,683,228 Second mortgage note payable in interest only monthly installments of $1,609, at a rate of 7.60% with principal due November 2002; collateralized by land and buildings... 254,085 254,085 ---------- ---------- Principal balance at year end............................... 7,736,250 7,937,313 Less unamortized discount................................... (379,756) (434,875) ---------- ---------- $7,356,494 $7,502,438 ========== ==========
F-18 1256 CHAPEL HILL, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) (UNAUDITED -- SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT) Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997................................................... $ 216,887 1998................................................... 233,957 1999................................................... 252,370 2000................................................... 272,232 2001................................................... 293,659 Thereafter............................................. 6,467,145 ---------- $7,736,250 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter, the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- -------- -------- Management fee......................................... $116,896 $115,300 Partnership administration fee......................... $ 48,000 $ 48,000 Reimbursement for services to affiliates............... $ 33,048 $ 36,142 Construction fee....................................... $ -- $ 23,303
F-19 1257 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 1258 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 1259 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 September , 1998 A-3 1260 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF CHESTNUT HILL ASSOCIATES 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 1261 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-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-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 Chestnut Hill 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 1262
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-71 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership............. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 1263 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 Chestnut Hill 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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. - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Tax-Deferral % Preferred OP Units. S-1 1264 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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. - 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 S-2 1265 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 $4,000 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 distributions of $ 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 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. 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 S-3 1266 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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? 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. S-4 1267 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: 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. 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-5 1268 (This page intentionally left blank) S-6 1269 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. 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. 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 5 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. 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 S-7 1270 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 1271 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 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 S-9 1272 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 1273 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, 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. 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 S-11 1274 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 22.25% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 1275 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 Preferred OP Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Preferred OP 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. 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." S-13 1276 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 1277 - 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 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 S-15 1278 MATTERS" STARTING ON PAGE S- OF 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 own 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 S-16 1279 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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 Consideration 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-1 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, the general partner is entitled to compensation for its services as general partner while the general partner of the AIMCO Operating Partnership is not entitled to any fees. S-17 1280 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 both the general partner of your partnership and the manager of your partnership's property. Your partnership's agreement of limited partnership provides that the general partner of your partnership receives a cumulative annual fee of $75,000 increased by 6% per annum, compounded annually, from your partnership and may also receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $248,814 in 1996, $301,301 in 1997 and $231,420 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 Your Partnership and its Property. Chestnut Hill Associates Limited Partnership is a Delaware limited partnership which was formed on July 21, 1986 for the purpose of owning and operating a single apartment property located in Philadelphia, Pennsylvania, known as "Chestnut Hill Village." Chestnut Hill Village consists of 830 apartment units. Your partnership has no employees. Property Management. Since November 1997, your partnership's property has been managed by an entity which is now our affiliate. 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. S-18 1281 Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2036, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $26,203,796, payable to Chase Manhattan Bank, which bears interest at a rate of 8.38%. The mortgage debt is due in January 2007. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1282 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 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 1283
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 1284 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 1285
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 1286 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 1287 SUMMARY FINANCIAL INFORMATION OF CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP The summary financial information of Chestnut Hill Associates Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Chestnut Hill Associates 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 of Your Partnership" included herein. See "Index to Financial Statements." CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------ ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ---------- ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues......... 4,037,397 0 7,890,090 7,282,832 7,089,955 6,866,983 6,594,086 Net Income/(Loss)............ (22,921) 0 (243,453) (843,418) (416,981) (883,533) (948,512) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation... 23,243,392 0 23,691,534 24,042,391 24,320,820 25,073,935 25,793,445 Total Assets........... 29,446,923 0 29,634,642 30,755,370 26,840,129 27,473,841 28,375,810 Mortgage Notes Payable, including Accrued Interest................... 26,387,681 0 26,496,245 26,500,000 21,842,333 21,958,925 22,064,622 Partners' Capital/(Deficit).......... 2,264,311 0 2,287,232 3,530,685 4,374,103 4,791,084 5,674,617
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 YOUR 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 $4,000
S-25 1288 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. 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 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 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, 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 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. S-26 1289 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 Code. 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 therefore 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 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. 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 S-27 1290 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 year ended December 31, 1997 were $4,000 per unit. 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 an 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 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. 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. S-28 1291 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently own a 22.25% limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 1292 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. S-30 1293 - 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 OP Units rank equal to five 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 1294 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 1295 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 1296 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. 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. S-34 1297 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." 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. 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. S-35 1298 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, (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 considerations 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 9:00 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 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, Denver, Colorado time. S-36 1299 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 1300 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. 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, which change, 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 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 S-38 1301 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 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 S-39 1302 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 1303 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. 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. 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-41 1304 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 E 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. S-42 1305 No interest, or sum of money in lieu of interest, shall be payable in respect of any 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 payment. 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 S-43 1306 allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred 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-44 1307 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 S-45 1308 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 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-46 1309 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-47 1310 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-48 1311 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-49 1312 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 1313 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-51 1314 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 1315 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 1316 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 1317 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 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, a third party expert, 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 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 year ended December 31, 1997 were $4,000. 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-55 1318 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 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-56 1319 COMPARISON TABLE Cash Offer Consideration.................................... $ 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. 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-57 1320 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 1321 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 September 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 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 property was 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 S-59 1322 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 1323 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Chestnut Hill Village. 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 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, 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 your partnership's property. a limited partnership organized pursuant to the Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as agreement of limited partnership, your partnership may amended from time to time, or any successor to such perform all act necessary, advisable or convenient to statute) (the "Delaware Limited Partnership Act"), the business of your partnership including acquiring provided that such business is to be conducted in a additional real or personal property, borrowing money manner that permits AIMCO to be qualified as a REIT, 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-61 1324 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 250 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 In addition, the general partner, without the consent Unitholder. See "Description of OP Units -- Management of the limited partners, may sell additional limited by the AIMCO GP" in the accompanying Prospectus. partnership interests on such terms and conditions and Subject to Delaware law, any additional partnership the additional limited partners will have such rights interests may be issued in one or more classes, or one and obligations as the general partner determines; or more series of any of such classes, with such provided that such additional limited partnership designations, preferences and relative, partici- interests may not decrease pro rata the interests of pating, optional or other special rights, powers and the original limited partners by more than 25% and such duties as shall be determined by the general partner, limited partners may purchase the additional limited in its sole and absolute discretion without the partnership interests pro rata in accordance with the approval of any OP Unitholder, and set forth in a percentage of interests they own for a period of 45 written document thereafter attached to and made an days after notice of such sale is given to the original exhibit to the AIMCO Operating Partnership Agreement. limited partners.
Restrictions Upon Related Party Transactions Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may contract with the funds or other assets to its subsidiaries or other general partner or its affiliates for services, persons in which it has an equity investment, and such including insurance brokerage, insurance coverage persons may borrow funds from the AIMCO Operating (including property, liability and title insurance), Partnership, on terms and conditions established in the additional management services, services relating to sole and absolute discretion of the general partner. To leasing, refinancing or additional renovation and the extent consistent with the business purpose of the brokerage services in the event of a sale of your AIMCO Operating Partnership and the permitted partnership's property. The general partner may provide activities of the general partner, the AIMCO Operating goods and services to your partnership at rates no Partnership may transfer assets to joint ventures, greater than prevailing market rates. Your partnership limited liability companies, partnerships, may also borrow money from partners or their affiliates corporations, business trusts or other business if such loan is evidenced by a promissory note, bears entities in which it is or thereby becomes a interest at a commercially reasonable rate not in participant upon such terms and subject to such excess of 3% above the "prime rate" of the Bank of conditions consistent with the AIMCO Operating Part- Boston and the obligation is subordinate to the nership Agreement and applicable law as the general obligations of your partnership to pay unrelated partner, in its sole and absolute discretion, believes creditors. 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 indebtedness in furtherance restrictions on borrowings, and the general partner has of any of the purposes of your partnership, and to full power and authority to borrow money on behalf of secure any such debt by mortgage, pledge, or other lien the AIMCO Operating Partnership. The AIMCO Operating on any of the assets of your partnership. 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.
S-62 1325 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 the limited partners to inspect the register with a statement of the purpose of such demand and at listing the names of all limited partners and the such OP Unitholder's own expense, to obtain a current number of Units owned by each limited partner at any list of the name and last known business, residence or reasonable time during normal business hours at the mailing address of the general partner and each other principal office of your partnership. OP Unitholder.
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, your 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 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. Limited partners have no 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 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, in 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 act 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 negligence or indemnification of AIMCO, or any director or officer of misconduct on the part of the general partner. In AIMCO (in its capacity as the previous general partner addition, the general partner and its affiliates are of the AIMCO Operating Partnership), the general entitled to indemnification by your partnership against partner, any officer or director of general partner or any loss, damage, liability, cost or expense incurred the AIMCO Operating Partnership and such other persons by them in connection with your partnership, provided as the general partner may designate from and against that such loss, damage, liability, cost or expense was all losses, claims, damages, liabilities, joint or not the result of negligence or misconduct of any such several, expenses (including legal fees), fines, entity provided, however, that such indemnity will be settlements and other amounts incurred in connection paid out of and only to the extent of partnership with any actions relating to the operations of the assets. Neither the general partner, any of its AIMCO Operating Partnership, as set forth in the AIMCO affiliates nor any placing brokers will be indemnified Operating Partnership Agreement. The Delaware Limited for any loss, damage or cost resulting from the Partnership Act provides that subject to the standards violation of any Federal or state securities law unless and restrictions, if any, set forth in its partnership either (a) either (1) there has been a successful agreement, a limited partnership may, and shall have adjudication on the merits of each count involving such the power to, indemnify and hold harmless any partner securities law violations, or other
S-63 1326 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP (2) such claims have been dismissed with prejudice on person from and against any and all claims and demands the merits by a court of competent jurisdiction or (3) whatsoever. It is the position of the Securities and a court of competent jurisdiction approves such a Exchange Commission that indemnification of directors settlement and (b) a court either (1) approves the and officers for liabilities arising under the settlement and finds that indemnification of the Securities Act is against public policy and is settlement and related costs should be made or (2) unenforceable pursuant to Section 14 of the Securities approves indemnification of litigation costs if a Act of 1933. successful defense is made. In such claim for indemnification for Federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect of 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 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. A general partner may withdraw AIMCO Operating Partnership by the OP Unitholders with voluntarily from your partnership only if there is or without cause. Under the AIMCO Operating Partnership another general partner or a successor is elected. A Agreement, the general partner may, in its sole limited partner may not transfer his interests without discretion, prevent a transferee of an OP Unit from the consent of the general partner which may be becoming a substituted limited partner pursuant to the withheld at the sole 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 to comply with tax in the AIMCO Operating Partnership Agreement, whereby laws and correct any ambiguity or error. Amendments of the general partner may, without the consent of the OP specified provisions of your partnership's agreement of Unitholders, amend the AIMCO Operating Partnership limited partnership may be made only with the prior Agreement, amendments to the AIMCO Operating written consent of all partners. Other amendments must Partnership Agreement require the consent of the be approved by the limited partners owning more than holders of a majority of the outstanding Common OP 50% of the units and the general partner. Units, excluding AIMCO and certain other limited exclusions (a "Majority in Interest"). Amendments to the AIMCO Operating Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives a cumulative annual fee of $75,000 in 1986, capacity as general partner of the AIMCO Operating increasing by 6% per annum. Moreover, the general Partnership. In addition, the AIMCO Operating Part- partner or certain affiliates may be entitled to nership is responsible for all expenses incurred compensation for additional services rendered. 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-64 1327 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, limited partners are 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 contributions 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 has been fully paid, no ment in the AIMCO Operating Partnership. However, the limited partner is, except as otherwise required by limitations on the liability of limited partners for law, required to make any further capital contribution the obligations of a limited partnership have not been 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, 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 at all times has any transaction as to which it has a conflict of a fiduciary responsibility for the safekeeping and use interest. The AIMCO Operating Partnership Agreement of all partnership funds and assets. However, the expressly authorizes the general partner to enter into, general partner of its affiliates may engage in or on behalf of the AIMCO Operating Partnership, a right possess an interest in other business ventures of every of first opportunity arrangement and other conflict nature and description including, without limitation, avoidance agreements with various affiliates of the real estate business ventures whether or not such other AIMCO Operating Partnership and the general partner, on enterprises may be in competition with any activities such terms as the general partner, in its sole and 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 1328 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 limitations; dissolve and Units" in the accompanying transactions such as the terminate your partnership; remove Prospectus. So long as any institution of bankruptcy a general partner and elect a new Preferred OP Units are outstand- proceedings, an assignment for the general partner; 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; cause Partnership Agree- Part-
S-66 1329 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS your partnership to engage in any ment, the affirmative vote or nership or the admission of a business other than as set forth in consent of holders of at least 50% successor general partner. your partnership's agreement of of the outstanding Preferred OP limited partnership; cause your Units will be necessary for Under the AIMCO Operating Partner- partnership to consolidate or merge effecting any amendment of any of ship Agreement, the general partner with another entity or cause your the provisions of the Partnership has the power to effect the partnership to institute bankruptcy Unit Designation of the Preferred acquisition, sale, transfer, proceedings. Such vote is also OP Units that materially and exchange or other disposition of necessary to approve transactions adversely affects the rights or any assets of the AIMCO Operating other than the decrease, increase preferences of the holders of the Partnership (including, but not or refinancing of any mortgage Preferred OP Units. The creation or limited to, the exercise or grant which may result in proceeds which issuance of any class or series of of any conversion, option, do not constitute Cash Flow (as partnership units, including, privilege or subscription right or defined in your partnership's without limitation, any partner- any other right available in agreement of limited partnership). ship units that may have rights connection with any assets at any senior or superior to the Preferred time held by the AIMCO Operating A general partner may cause the OP Units, shall not be deemed to Partnership) or the merger, dissolution of the your partnership materially adversely affect the consolidation, reorganization or by retiring. Your partnership may rights or preferences of the other combination of the AIMCO be continued by the remaining holders of Preferred OP Units. With Operating Partnership with or into general partner if, in its sole respect to the exercise of the another entity, all without the discretion, it elects to do so. If above described voting rights, each consent of the OP Unitholders. there is no general partner to Preferred OP Units shall have one continue your partnership, the (1) vote per Preferred OP Unit. The general partner may cause the limited partners, within ninety dissolution of the AIMCO Operating days of the retirement, may elect Partnership by an "event of to continue your partnership by withdrawal," as defined in the electing a substitute general Delaware Limited Partnership Act partner by unanimous consent. (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 Flow (as $ per Preferred OP Unit; tribute quarterly all, or such defined in your partnership's provided, however, that at any time portion as the general partner may agreement of limited partnership) and from time to time on or after in its sole and absolute discretion are made at reasonable intervals the fifth anniversary of the issue determine, of Available Cash (as during the fiscal year as date of the Preferred OP Units, the defined in the AIMCO Operating determined by the general partner, AIMCO Operating Partnership may Partnership Agreement) generated by and in any event are made within 60 adjust the annual distribution rate the AIMCO Operating Partnership days after the close of each fiscal on the Preferred OP Units to the during such quarter to the general year. The distributions payable to lower of (i) % plus the annual partner, the special limited the partners are not fixed in interest rate then applicable to partner and the holders of Common 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. Your preferred stock which ranks on a interests in the AIMCO Operating partnership has made distri- parity with its Class H Cumu- Partnership on such record date. butions in the past and is Holders of any other Pre- projected to make distributions in 1998.
S-67 1330 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 other than a Preferred OP Units and the OP Units. The AIMCO Operating Part- minor, except in limited Preferred OP Units are not listed nership Agreement restricts the circumstances, and may be substi- on any securities exchange. The transferability of the OP Units. tuted as a limited partner by such Preferred OP Units are subject to Until the expiration of one year person if: (1) the transfer restrictions on transfer as set from the date on which an OP complies with the then-applicable forth in the AIMCO Operating Unitholder acquired OP Units, rules and regulations of any Partnership Agreement. subject to certain exceptions, such governmental authority with OP Unitholder may not transfer all jurisdiction over the disposition, Pursuant to the AIMCO Operating or any portion of its OP Units to (2) except in specified Partnership Agreement, until the any transferee without the consent circumstances, the interest expiration of one year from the of the general partner, which transferred is not less than 1/2 date on which a holder of Preferred consent may be withheld in its sole Unit, (3) the transfer, when added OP Units acquired Preferred OP and absolute discretion. After the to all other assignment taking Units, subject to certain expiration of one year, such OP place in the preceding 12 month 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 the partnership for tax purposes, all or any portion of its Pre- OP Units to any person, subject to (4) a written assignment has been ferred OP Units to any transferee the satisfaction of certain duly executed and acknowledged by without the consent of the general conditions specified in the AIMCO the assignor and assignee, (5) the partner, which consent may be Operating Partnership Agreement, approval of the general partner withheld in its sole and absolute including the general partner's which may be withheld in the sole discretion. After the expiration of right of first refusal. See and absolute discretion of the one year, such holders of Preferred "Description of OP Units -- general partner has been granted OP Units has the right to transfer Transfers and Withdrawals" in the and (6) the assignor and assignee all or any portion of its Preferred ac- have complied OP Units to
S-68 1331 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS with such other conditions as set any person, subject to the companying Prospectus. forth in your partnership's satisfaction of certain conditions agreement of limited partnership. specified in the AIMCO Operating After the first anniversary of Partnership Agreement, including becoming a holder of Common OP There are no redemption rights the general partner's right of Units, an OP Unitholder has the associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 1332 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives a cumulative annual fee of $75,000 in 1986, increasing by 6% per annum from your partnership. The property manager received management fees of $248,814 in 1996, $301,301 in 1997 and $231,420 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's 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'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 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-70 1333 YOUR PARTNERSHIP GENERAL Chestnut Hill Associates Limited Partnership is a Delaware limited partnership. Insignia acquired your partnership in November 1997. AIMCO acquired Insignia in October, 1998. There are currently a total of 194 limited partners of your partnership and a total of 250 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on July 21, 1986 for the purpose of owning and operating a single apartment property located in Philadelphia, Pennsylvania, known as "Chestnut Hill Village." Your partnership's property consists of 830 apartment units. There are 478 one-bedroom apartments, 307 two-bedroom apartments and 36 three-bedroom apartments. The total rentable square footage of your partnership's property is 821,141 square feet. The average annual rent per apartment unit is approximately $8,644. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1997, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $248,814, $301,301 and $231,420, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2036 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All S-71 1334 capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $26,203,796, payable to Chase Manhattan Bank, which bears interest at a rate of 8.38%. The mortgage debt is due in January 2007. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 1335 Below is selected financial information for Chestnut Hill Associates Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, --------------------------- ----------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ ------------ ----------- BALANCE SHEET DATA Cash and Cash Equivalents.......... 3,839,553 Not 3,738,778 4,621,527 961,871 606,566 555,030 Land & Building........ 39,518,803 Available 39,189,654 37,985,931 36,856,639 36,307,030 35,753,703 Accumulated Depreciation......... (16,275,411) (15,498,120) (13,943,540) (12,535,819) (11,233,095) (9,960,258) Other Assets........... 2,363,978 2,204,330 2,091,452 1,557,438 1,793,340 2,027,335 ------------ ------------ ------------ ------------ ------------ ------------ ----------- Total Assets...... 29,446,923 29,634,642 30,755,370 26,840,129 27,473,841 28,375,810 ============ ============ ============ ============ ============ ============ =========== Mortgage & Accrued Interest............. 26,387,681 26,496,245 26,500,000 21,842,333 21,958,925 22,064,622 Other Liabilities...... 794,931 851,165 724,685 623,693 723,832 636,571 ------------ ------------ ------------ ------------ ------------ ------------ ----------- Total Liabilities.. 27,182,612 27,347,410 27,224,685 22,466,026 22,682,757 22,701,193 ------------ ------------ ------------ ------------ ------------ ------------ ----------- Partners Capital (Deficit)............ 2,264,311 2,287,232 3,530,685 4,374,103 4,791,084 5,674,617 ============ ============ ============ ============ ============ ============ ===========
CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue..................... 3,562,418 Not 7,152,626 6,716,768 6,487,969 6,364,686 6,169,468 Other Income....................... 474,979 Available 737,464 566,064 601,986 502,297 424,618 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. 4,037,397 7,890,090 7,282,832 7,089,955 6,866,983 6,594,086 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 1,619,701 3,288,580 3,405,517 3,063,528 3,328,472 3,116,427 General & Administrative........... 181,702 216,285 154,954 196,106 190,698 217,652 Depreciation....................... 777,291 1,554,580 1,407,721 1,302,724 1,272,838 1,244,363 Interest Expense................... 1,120,021 2,286,201 2,361,533 2,140,089 2,150,984 2,160,425 Property Taxes..................... 361,603 787,897 796,525 804,489 807,524 803,731 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ 4,060,318 8,133,543 8,126,250 7,506,936 7,750,516 7,542,598 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income......................... (22,921) (243,453) (843,418) (416,981) (883,533) (948,512) ========== ========== ========== ========== ========== ========== ==========
S-73 1336 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Due to this partnership being a recent acquisition, very little discussion is available for variances. Results of Operations Six Months Ended June 30, 1998 Due to this partnership being a recent acquisition no data is available for the six months ended June 30, 1997. Net Income Your partnership recognized a net loss of $22,921 for the six months ended June 30, 1998. Revenues Rental and other property revenues from the partnership's property totaled $4,037,397 for the six months ended June 30, 1998. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,619,701 for the six months ended June 30, 1998. Management expenses totaled $231,420 for the six months ended June 30, 1998. General and Administrative Expenses General and administrative expenses totaled $181,702 for the six months ended June 30, 1998. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,120,021 for the six months ended June 30, 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $243,453 for the year ended December 31, 1997, compared to a loss of $843,418 for the year ended December 31, 1996. The increase in net income of $599,965, or 71.13% was primarily the result of increased revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $7,890,090 for the year ended December 31, 1997, compared to $7,282,832 for the year ended December 31, 1996, an increase of $607,258, or 8.34%. This is primarily due to an increase in occupancy and rental rates. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $3,288,580 for the year ended December 31, 1997, compared to $3,405,517 for the year ended December 31, S-74 1337 1996, a decrease of $116,937 or 3.43%. Management expenses totaled $301,301 for the year ended December 31, 1997, compared to $248,814 for the year ended December 31, 1996, an increase of $52,487, or 21.09%. The increase resulted from increased revenues, as management fees are calculated based on a percentage of revenues. General and Administrative Expenses General and administrative expenses totaled $216,285 for the year ended December 31, 1997 compared to $154,954 for the year ended December 31, 1996, an increase of $61,331 or 39.58%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $2,286,201 for the year ended December 31, 1997, compared to $2,361,533 for the year ended December 31, 1996, a decrease of $75,332, or 3.19%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $843,418 for the year ended December 31, 1996, compared to a net loss of $416,981 for the year ended December 31, 1995. The decrease of $426,437, or 102.27% was primarily the result of an increase in operating expenses in excess of an increase in revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $7,282,832 for the year ended December 31, 1996, compared to $7,089,955 for the year ended December 31, 1995, an increase of $192,877, or 2.72%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $3,405,517 for the year ended December 31, 1996, compared to $3,063,528 for the year ended December 31, 1995, an increase of $341,989 or 11.16%. Management expenses totaled $248,814 for the year ended December 31, 1996, compared to $243,532 for the year ended December 31, 1995, an increase of $5,282, or 2.17%. General and Administrative Expenses General and administrative expenses totaled $154,954 for the year ended December 31, 1996 compared to $196,106 for the year ended December 31, 1995, a decrease of $41,152 or 20.98%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $2,361,533 for the year ended December 31, 1996, compared to $2,140,089 for the year ended December 31, 1995, a decrease of $221,444, or 10.35%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $3,839,553 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-75 1338 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, in 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 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 the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is 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 incurred by them in connection with your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct of any such entity provided, however, that such indemnity will be paid out of and only to the extent of Partnership assets. Neither the general partner, any of its affiliates nor any placing brokers will be indemnified for any loss, damage or cost resulting from the violation of any Federal or state securities law unless either (a) either (1) there has been a successful adjudication on 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 such a settlement and (b) a court either (1) approves the settlement and finds that indemnification of the settlement and related costs should be made or (2) approves indemnification of litigation costs if a successful defense is made. In such claim for indemnification for Federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect of the issue of indemnification for securities law violations. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership will not incur the cost of the portion of any insurance which insures any party against any liabilities as to which such part is prohibited from being indemnified under your partnership's agreement of limited partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 0 1995........................................................ 0 1996........................................................ 0 1997........................................................ 4,000 1998 (through June 30)...................................... 0
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or S-76 1339 maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP AIMCO currently owns a 22.25% limited partnership interest in your partnership. Except as described above, neither AIMCO, 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 transaction in the units, 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) management fees in its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- --------------- 1994........................................................ $111,169 1995........................................................ 121,032 1996........................................................ 119,543 1997........................................................ 99,071 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $243,532 1996........................................... 248,814 1997........................................... 301,301 1998 (through June 30)......................... 231,420
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 company paid to the property manager or AIMCO and its affiliates. S-77 1340 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Chestnut Hill Associates Limited Partnership at December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by Reznick Fedder & Silverman, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-78 1341 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statement of Operations for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-3 Condensed Statement of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-8 Balance Sheets as of December 31, 1997 and 1996............. F-9 Statements of Operations for the years ended December 31, 1997 and 1996............................................. F-10 Statements of Partners' Equity for the years ended December 31, 1997 and 1996......................................... F-11 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-12 Notes to Financial Statements............................... F-13 Independent Auditors' Report................................ F-19 Balance Sheets as of December 31, 1996 and 1995............. F-20 Statements of Operations for the years ended December 31, 1996 and 1995............................................. F-21 Statements of Partners' Equity for the years ended December 31, 1996 and 1995......................................... F-22 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-23 Notes to Financial Statements............................... F-24
F-1 1342 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 3,839,553 Other Assets................................................ 2,363,978 Investment Property: Land...................................................... 4,740,951 Building and related personal property.................... 34,777,852 ------------ 39,518,803 Less: Accumulated depreciation............................ (16,275,411) 23,243,392 ------------ ----------- Total Assets...................................... $29,446,923 =========== LIABILITIES AND PARTNERS' CAPITAL Other Accrued Liabilities................................... $ 794,931 Notes Payable............................................... 26,387,681 Partners' Capital........................................... 2,264,311 ----------- Total Liabilities and Partners' Capital........... $29,446,923 ===========
F-2 1343 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Revenues: Rental Income............................................. $3,562,418 Other Income.............................................. 474,979 ---------- Total Revenues.................................... 4,037,397 Expenses: Operating Expenses........................................ 1,619,701 General and Administrative Expenses....................... 181,702 Depreciation Expense...................................... 777,291 Interest Expense.......................................... 1,120,021 Property Tax Expense...................................... 361,603 ---------- Total Expenses.................................... 4,060,318 Net Income (Loss)................................. $ (22,921) ==========
F-3 1344 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Operating Activities: Net Income (loss)......................................... $ (22,921) Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 777,291 Changes in accounts: Receivables and deposits and other assets............ (159,648) Accounts Payable and accrued expenses................ (56,234) ---------- Net cash provided by (used in) operating activities........................................ 538,488 ---------- Investing Activities: Property improvements and replacements.................... (329,149) ---------- Net cash provided by (used in) investing activities........................................ (329,149) ---------- Financing Activities: Payments on mortgage...................................... (108,564) ---------- Net cash provided by (used in) financing activities........................................ (108,564) ---------- Net increase (decrease) in cash and cash equivalents....................................... 100,775 Cash and cash equivalents at beginning of year.............. 3,738,778 ---------- Cash and cash equivalents at end of period.................. $3,839,553 ==========
F-4 1345 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Chestnut Hill Associates Limited Partnership as of June 30, 1998 and for the six months ended June 30, 1998 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 1346 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 1997 AND 1996 F-6 1347 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-8 Financial Statements Balance Sheets............................................ F-9 Statements of Operations.................................. F-10 Statements of Partners' Equity............................ F-11 Statements of Cash Flows.................................. F-12 Notes to Financial Statements............................. F-13
F-7 1348 INDEPENDENT AUDITORS' REPORT To the Partners Chestnut Hill Associates Limited Partnership We have audited the accompanying balance sheets of Chestnut Hill Associates Limited Partnership, a Delaware limited partnership, as of December 31, 1997 and 1996, and the related statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chestnut Hill Associates Limited Partnership as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ REZNICK FEDDERS & SILVERMAN Bethesda, Maryland February 2, 1998 F-8 1349 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31 ASSETS
1997 1996 ----------- ----------- Investment in real estate Land...................................................... $ 4,740,951 $ 4,740,951 Building and improvements................................. 30,560,768 30,255,690 Personal property......................................... 3,887,935 2,989,290 ----------- ----------- 39,189,654 37,985,931 Less accumulated depreciation.......................... 15,498,120 13,943,540 ----------- ----------- 23,691,534 24,042,391 ----------- ----------- Cash and cash equivalents................................. 3,228,632 4,164,609 Tenant security deposits -- funded........................ 510,146 456,918 Mortgage reserves held in escrow.......................... 1,579,705 1,343,384 Mortgage costs, not of accumulated amortization of $67,720 and $1,080, respectively............................... 598,680 400,320 Other assets.............................................. 25,945 347,748 ----------- ----------- 5,943,108 6,712,979 ----------- ----------- $29,634,642 $30,755,370 =========== =========== LIABILITIES AND PARTNERS' EQUITY Liabilities applicable to investment in real property Mortgage payable.......................................... $26,312,360 $26,500,000 Other liabilities Tenants' security deposits................................ 475,379 455,681 Accounts payable.......................................... 88,667 64,238 Accrued interest payable.................................. 183,885 -- Accrued expenses.......................................... 287,119 204,766 ----------- ----------- Total liabilities...................................... 27,347,410 27,224,685 Commitments................................................. -- -- Partners' equity............................................ 2,287,232 3,530,685 ----------- ----------- $29,634,642 $30,755,370 =========== ===========
See notes to financial statements F-9 1350 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31
1997 1996 ---------- ---------- Revenue Rental income............................................. $7,152,626 $6,716,768 Interest income........................................... 139,438 41,762 Other income.............................................. 598,026 524,302 ---------- ---------- 7,890,090 7,282,832 ---------- ---------- Operating expenses Leasing................................................... 335,574 241,088 General and administrative................................ 216,285 154,954 Management fees........................................... 301,301 248,814 Utilities................................................. 1,013,814 1,208,381 Repairs and maintenance................................... 829,254 894,114 Insurance................................................. 228,999 244,869 Taxes..................................................... 787,897 796,525 ---------- ---------- 3,713,124 3,788,745 ---------- ---------- Other expenses Depreciation.............................................. 1,554,580 1,407,721 Amortization.............................................. 66,640 64,045 Interest expense.......................................... 2,286,201 2,361,533 Other expenses............................................ 512,998 504,206 ---------- ---------- 4,420,419 4,337,505 ---------- ---------- Total expenses......................................... 8,133,543 8,126,250 ---------- ---------- Net loss............................................... $ (243,453) $ (843,418) ========== ========== Net loss allocated to CHA Properties, Inc................... $ (2,435) $ (370) ========== ========== Net loss allocated to WFA................................... $ (14,607) $ (58,669) ========== ========== Net loss allocated to Investor Limited Partners............. $ (226,411) $ (784,379) ========== ========== Net loss per unit outstanding -- Investor Limited Partners.................................................. $ (906) $ (3,138) ========== ========== Weighted average number of outstanding...................... $ 250 $ 250 ========== ==========
See notes to financial statements F-10 1351 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' EQUITY YEARS ENDED DECEMBER 31, 1997 AND 1996
WINTHROP INVESTOR FINANCIAL LIMITED CHA ASSOCIATES PARTNERS PROPERTIES, INC. TOTAL ----------- ----------- ---------------- ----------- Balance, December 31, 1995........... $(1,649,954) $ 6,024,057 $ -- $ 4,374,103 Transfer of interest................. 227,552 -- (227,552) -- Net loss............................. (58,669) (784,379) (370) (843,418) ----------- ----------- --------- ----------- Balance, December 31, 1996........... (1,481,071) 5,239,678 (227,922) 3,530,685 Distributions to partners............ -- (1,000,000) -- (1,000,000) Net loss............................. (14,607) (226,411) (2,435) (243,453) ----------- ----------- --------- ----------- Balance, December 31, 1997........... $(1,495,678) $ 4,013,267 $(230,357) $ 2,287,232 =========== =========== ========= ===========
See notes to financial statements F-11 1352 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31
1997 1996 ----------- ------------ Cash flows from operating activities Net loss.................................................. $ (243,453) $ (843,418) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation ad amortization........................... 1,621,220 1,471,766 (Increase) decrease in mortgage reserves held in escrow............................................... 36,006 (167,588) (Increase) decrease in other assets.................... 321,803 (208,170) Increase (decrease) in accounts payable................ 24,429 (57,768) Increase in accrued expenses........................... 82,353 114,454 Net security deposits (paid) received.................. (33,530) 7,764 Increase (decrease) in accrued interest payable........ 183,885 (179,639) ----------- ------------ Net cash provided by operating activities............ 1,992,713 137,401 ----------- ------------ Cash flows from investing activities Investment in real estate................................. (1,203,723) (1,129,292) Net deposits to/receipts from reserve for replacements.... (272,327) 126,930 ----------- ------------ Net cash used in investing activities................ (1,476,050) (1,002,362) ----------- ------------ Cash flows from financing activities Distributions to partners................................. (1,000,000) -- Payments on mortgage...................................... (187,640) (21,662,694) Proceeds from mortgage loan............................... -- 26,500,000 Increase in mortgage costs................................ (265,000) (349,231) ----------- ------------ Net cash (used in) provided by financing activities........................................ (1,452,640) 4,488,075 ----------- ------------ Net (decrease) increase in cash and cash equivalents....................................... (935,977) 3,623,114 Cash and cash equivalents, beginning........................ 4,164,609 541,495 ----------- ------------ Cash and cash equivalents, end.............................. $ 3,228,632 $ 4,164,609 =========== ============ Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 2,102,316 $ 2,541,172 =========== ============
See notes to financial statements F-12 1353 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Chestnut Hill Associates Limited Partnership, a Delaware limited partnership, was formed in July 1986 to acquire, renovate and operate an apartment complex known as Chestnut Hill (the "Property"). The Property consists of an 830-unit garden apartment and townhouse development located on 31.2 acres of land in Philadelphia, Pennsylvania. The Partnership will terminate on December 31, 2036, or earlier upon the occurrence of certain events specified in the Partnership Agreement. The general partner of the Partnership was Winthrop Financial Associates. A Limited Partnership, a Maryland Limited Partnership ("WFA"). The initial limited partners of the Partnership were The Winthrop Properties, Inc. and WFA. Prior to December 16, 1996 profits and losses from normal operations were allocated 7% to WFA and 93% to the Investor Limited Partners. Cash flow from operations were allocated 3% to WFA and 97% to the Investor Limited Partners. Effective December 16, 1996, WFA withdrew from the partnership as the general partner and assigned 1% of 7% interest to the new general partner, CHA Properties, Inc. ("CHA"). WFA retained its remaining 6% interest which was converted to a limited partnership interest but is not considered an investor limited partner. Profits, losses and distributions of the partnership are allocated 1% to the general partner, 6% to WFA and 93% to the investor limited partners. Basis of Presentation The partnership prepares its financial statements on the accrual basis of accounting. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Investment in Real Estate Investment in real estate is carried at cost. The Partnership depreciates the property on the straight-line method over their estimated useful lives for financial statement purposes. For income tax purposes, accelerated methods and lives are used. Amortization Mortgage costs are amortized over the term of the mortgage loan using the straight-line method. Income Taxes No provision has been made for federal, state or local income taxes in the financial statements of the Partnership. The Partners are required to report on their individual income tax returns their allocable share of income, gains, losses, deductions and credits of the Partnership. The Partnership files its own tax return on the accrual basis. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Partnership and tenants of the property are operating leases. F-13 1354 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents For the purpose of the statement of cash flows, the partnership considers all highly liquid investments to be cash equivalents. The carrying amount in 1997 of $2,059,961 and in 1996 of $3,873,025 approximates fair value because of the short maturity of this instrument. NOTE B -- MORTGAGE COSTS The following is a summary of mortgage costs at December 31, 1997 and 1996:
AMORTIZATION PERIOD 1997 1996 ------------- -------- -------- Mortgage Loan Costs................................... 12/96 - 01/07 $666,400 $401,400 Less: Accumulated Amortization........................ 67,720 1,080 -------- -------- Unamortized Costs............................... $598,680 $400,320 ======== ========
NOTE C -- MORTGAGE PAYABLE The Partnership obtained a mortgage note in the original amount of $22,171,000, payable in equal monthly installments of principal and interest of approximately $188,000 through July 1997. The loan bore a fixed interest rate of 9.85% per year. On December 20, 1996, the Partnership refinanced the mortgage note with Chase Manhattan Bank ("Mortgage Lender") in the aggregate amount of $26,500,000. The new loan bears interest at a rate of 8.375%. Principal and interest are payable by the Partnership in monthly installments of $201,419 commencing on February 1, 1997 through January 1, 2007 with a balloon payment due of approximately $23,460,471. Included in interest expense for the year ended December 31, 1996 is $215,341 of a prepayment penalty paid to the previous lender as a result of the refinancing mortgage note. Principal payments due on the mortgage for the five years following December 31, 1997 are:
DECEMBER 31, - ------------ 1998.......................................................... $221,754 1999.......................................................... 241,055 2000.......................................................... 262,037 2001.......................................................... 284,845 2002.......................................................... 309,638
The liability of the Partnership under the mortgage is limited to the underlying value of the real estate plus other amounts deposited with the lender. The mortgage note is collateralized by the Property, the leases thereon, management agreement and rental income. F-14 1355 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TAXABLE LOSS The Partnership's taxable loss for 1997 and 1996 differs from the net loss for financial reporting purposes primarily due to differences in depreciation. The taxable loan for 1997 and 1996 are as follows:
1997 1996 --------- --------- Net loss for financial reporting purposes................... $(243,453) $(843,418) Plus: Accelerated depreciation on real and personal property.................................................. (8,574) (7,876) Other....................................................... 26,403 6,185 --------- --------- Taxable loss................................................ $(225,624) $(845,109) ========= =========
NOTE E -- MORTGAGE RESERVES HELD IN ESCROW The Partnership has set up various reserve escrows with the Mortgage Lender in connection with the Mortgage Note. The replacement reserve in the amount of $610,941 and $169,999 at December 31, 1997 and 1996, respectively, secures the Partnership's agreement to undertake certain improvements to the Property over the life of the mortgage loan. The amount of this reserve will be reduced as improvements are completed. An escrow for taxes and insurance has been set up under the Mortgage Note Agreement. All taxes and insurance will be paid by the Mortgage Lender out of these escrow accounts. The amounts held in escrow for insurance and taxes at December 31, 1997 and 1996, is $778,806 and $814,812, respectively. In addition, the Partnership was required to enter into a Completion/Repair and Security agreement as part of the mortgage note agreement. The Partnership was required to make an initial deposit of $358,573. The deposit represents 125 percent of the estimated costs to complete the "Repairs" as defined in the agreement. The partnership completed all repairs by June 20, 1997. The balance at December 31, 1997 is $189,958. The Mortgage Lender has the right to draw upon these escrows in the event that the Partnership defaults in the performance of its obligations under the mortgage note, including its obligations to pay principal and interest. The replacement reserve shall be invested in interest bearing instruments. NOTE F -- RELATED PARTY TRANSACTIONS The Partnership has incurred charges by and commitments to companies affiliated by common ownership and management with CHA and WFA. Related party transactions with WFA and its affiliates include the following: General and administrative expenses include $89,657 end $119,543 in 1997 and 1996, respectively, representing investor service fees as well as $157,141 and $177,724 in 1997 and 1996, respectively, representing consulting management fees equal to 2.5% of gross collections. Both fees were paid to affiliates of CHA and WFA. An affiliate of CHA and WFA was the on-site management agent of the property. Management fees include $223,917 and $248,814 in 1997 and 1996, respectively, representing a property management fee equal to 3.5% of gross collections paid to the affiliate. On October 28, 1997, the Partnership terminated Winthrop Management as the managing agent and appointed an affiliate of Insignia Financial Group ("Insignia") to assume the management of the property. (See note I to the financial statements). Management fees of $77,384, representing a property management fee equal to 5% of gross collections was charged to operations in 1997. Unpaid fees totaled $69,226 at December 31, 1997 and is included in accrued expenses. F-15 1356 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) General and administrative expenses include $21,120 of asset management fees and $9,414 of general partner fees reimbursements charged to operations in 1997. These fees are payable to an affiliate of the general partner. In connection with the refinancing of the mortgage note on December 20, 1996, the Partnership paid an affiliate of general partner a refinancing fee of $198,750. NOTE G -- CONCENTRATION OF CREDIT RISK At December 31, 1997, the Partnership has cash in the amount of $1,579,705 held by the Mortgage Lender. The tax and insurance account is insured by the Federal Deposit Insurance Corporation. The uninsured portion of this balance at December 31, 1997 is $700,899. At December 31, 1997, the Partnership had bank deposits in excess of federally-insured limits by $398,372. NOTE H -- TENDER OFFER OF LIMITED PARTNERSHIP INTEREST On November 4, 1996, Lon-Chestnut Hill Associates L.L.C., a Delaware limited partnership, an affiliate of Winthrop Financial Associates, A Limited Partnership ("WFA"), the original general partner of the Partnership, offered to purchase up to 119 units of limited partnership interest in the Partnership for cash consideration of $20,000 per unit (the "Offer"). The Offer was originally scheduled to expire on December 6, 1996. The expiration date of the Offer was extended to December 13, 1996 at which time approximately 119 units of limited partnership interest in the Partnership had been tendered pursuant to the Offer. NOTE I -- OTHER INFORMATION On October 28, 1997, Insignia Financial Group ("Insignia") acquired 100% of the Class B stock of First Winthrop Corporate ("FWC") an affiliate of WFA and CHA. In connection with this acquisition, a nominee of Insignia was elected as a director of FWC and has been appointed to the residential committee of the board of directors of FWC. NOTE J -- COMMITMENTS Lead Based Paint Agreement In connection with the refinancing of the mortgage note in 1996, the Partnership was required to perform an environmental assessment of the Property. It was determined through sampling and analysis that part of the Property may contain "Lead Based Paint". As a condition to the making of the mortgage note, the Partnership is required to develop, implement and carry out an operations and maintenance plan for "Lead Based Paint" on the Property ("O & M Plan"). The "O & M Plan" requires that in event the Partnership desires to make renovations to or demolish the Property or any portion, thereof, the Partnership is required to have all painted surfaces (including all underlying paint layers) at the Property that are being renovated or demolished tested for the presence of Lead Based Paint by a qualified environmental consultant. If such tests indicate the presence of Lead Based Paint at the Property, the Partnership is required at their expense, to remove all Lead Based Paint in accordance with all applicable local, state and federal laws. Asbestos Operations and Maintenance Agreement As a condition of making the loan, the Partnership has agreed to develop an operations and maintenance program for the Property with respect to the presence of asbestos (the "O & M Program"). The Operations and Maintenance Program has been established to minimize potential exposures to asbestos fibers from asbestos containing materials ("ACM") present in the property. The program has been designed to reduce the possibility of disturbing ACM during maintenance, repair and renovation activities. F-16 1357 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995 F-17 1358 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-19 Financial Statements Balance Sheets............................................ F-20 Statements of Operations.................................. F-21 Statements of Partners' Equity............................ F-22 Statements of Cash Flows.................................. F-23 Notes to Financial Statements............................. F-24
F-18 1359 INDEPENDENT AUDITORS' REPORT To the Partners Chestnut Hill Associates Limited Partnership We have audited the accompanying balance sheets of Chestnut Hill Associates Limited Partnership, a Delaware limited partnership, as of December 31, 1996 and 1995, and the related statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chestnut Hill Associates Limited Partnership as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ REZNICK FEDDERS & SILVERMAN Bethesda, Maryland February 7, 1997 F-19 1360 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS
1996 1995 ----------- ----------- Investment in real estate Land...................................................... $ 4,740,951 $ 4,740,951 Building and improvements................................. 30,255,690 29,669,636 Personal property......................................... 2,989,290 2,446,052 ----------- ----------- 37,985,931 36,856,639 Less accumulated depreciation.......................... 13,943,540 12,535,819 ----------- ----------- 24,042,391 24,320,820 ----------- ----------- Cash and cash equivalents................................. 4,164,609 541,495 Tenant security deposits -- funded........................ 456,918 420,376 Mortgage reserves held in escrow.......................... 1,343,384 1,302,726 Deferred financing costs, net of accumulated amortization of $1,080 and $358,119................................. 400,320 115,134 Other assets.............................................. 347,748 139,578 ----------- ----------- 6,712,979 2,519,309 ----------- ----------- $30,755,370 $26,840,129 =========== =========== LIABILITIES AND PARTNERS' EQUITY Liabilities applicable to investment in real property Mortgage payable.......................................... $26,500,000 $21,662,694 Other liabilities Tenants' security deposits................................ 455,681 411,375 Accounts payable.......................................... 64,238 122,006 Accrued interest payable.................................. -- 179,639 Accrued expenses.......................................... 204,766 90,312 ----------- ----------- Total Liabilities...................................... 27,224,685 22,466,026 Commitments................................................. -- -- Partners' equity............................................ 3,530,685 4,374,103 ----------- ----------- Total liabilities and partner's equity............ $30,755,370 $26,840,129 =========== ===========
See notes to financial statements F-20 1361 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ---------- ---------- Revenue Rental income............................................. $6,716,768 $6,487,969 Interest income........................................... 41,762 37,839 Other income.............................................. 524,302 564,147 ---------- ---------- 7,282,832 7,089,955 ---------- ---------- Operating expenses Leasing................................................... 241,088 194,855 General and Administrative................................ 154,954 196,106 Management Fees........................................... 248,814 243,532 Utilities................................................. 1,208,381 1,071,729 Repairs and Maintenance................................... 894,114 889,750 Insurance................................................. 244,869 241,026 Taxes..................................................... 796,525 804,489 ---------- ---------- 3,788,745 3,641,487 ---------- ---------- Other expenses Depreciation.............................................. 1,407,721 1,302,724 Amortization.............................................. 64,045 62,965 Interest expense.......................................... 2,361,533 2,140,089 Other expenses............................................ 504,206 359,671 ---------- ---------- 4,337,505 3,865,449 ---------- ---------- Total expenses.............................................. 8,126,250 7,506,936 ---------- ---------- Net loss.................................................... $ (843,418) $ (416,981) ========== ========== Net loss allocated to CHA Properties, Inc .................. $ (370) $ -- ========== ========== Net loss allocated to Investor Limited Partners............. $ (784,379) $ (387,792) ========== ========== Net loss allocated to WFA................................... $ (58,669) $ (29,189) ========== ========== Net loss per unit outstanding -- Investor Limited Partners.................................................. $ (3,138) $ (1,551) ========== ========== Weighted average number of outstanding...................... $ 250 $ 250 ========== ==========
See notes to financial statements F-21 1362 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' EQUITY YEARS ENDED DECEMBER 31, 1996 AND 1995
WINTHROP INVESTOR FINANCIAL LIMITED CHA ASSOCIATES PARTNERS PROPERTIES, INC. TOTAL ---------- -------- ---------------- ----- Balance, December 31, 1994............. $(1,620,765) $6,411,849 $ -- $4,791,084 Net loss............................... (29,189) (387,792) -- (416,981) ----------- ---------- ---------------- ---------- Balance, December 31, 1995............. (1,649,954) 6,024,057 -- 4,374,103 Transfer of interest................... 227,552 -- (227,552) -- Net loss............................... (58,669) (784,379) (370) (843,418) ----------- ---------- ---------------- ---------- Balance, December 31, 1996............. $(1,481,071) $5,239,678 $ (227,922) $3,530,685 =========== ========== ================ ==========
See notes to financial statements F-22 1363 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ------------ ---------- Cash flows from operating activities Net loss.................................................. $ (843,418) $ (416,981) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization.......................... 1,471,766 1,365,689 (Increase) decrease in mortgage reserves held in escrow................................................ (167,588) 23,953 Increase in other assets............................... (208,170) (18,343) Decrease in accounts payable........................... (57,768) (69,043) (Decrease) Increase in accrued expenses................ 114,454 (89,813) Net security deposits received (paid).................. 7,764 (3,766) Decrease in accrued interest payable................... (179,639) -- ------------ ---------- Net cash provided by operating activities............ 137,401 791,696 ------------ ---------- Cash flows from investing activities Payments for improvements to property..................... (1,129,292) (549,609) Deposits to reserve for replacements...................... 1,063,400 (186,024) Withdrawals from reserve for replacements................. (936,470) 353,351 ------------ ---------- Net cash used in investing activities................ (1,002,362) (382,282) ------------ ---------- Cash flows from financing activities Payments on mortgage...................................... (21,662,694) -- Proceeds from mortgage loan............................... 26,500,000 (116,592) Increase in deferred financing costs...................... (349,231) -- ------------ ---------- Net cash provided by (used in) financing activities.......................................... 4,488,075 (116,592) ------------ ---------- Net increase in cash and cash equivalents................... 3,623,114 292,822 Cash and cash equivalents, beginning........................ 541,495 248,673 ------------ ---------- Cash and cash equivalents, end.............................. $ 4,164,609 $ 541,495 ============ ========== Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 2,541,172 $2,140,089 ============ ==========
See notes to financial statements F-23 1364 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Chestnut Hill Associates Limited Partnership, a Delaware limited partnership, was formed in July 1986 to acquire, renovate and operate an apartment complex known as Chestnut Hill (the "Property"). The Property consists of an 830-unit garden apartment and townhouse development located on 31.2 acres of land in Philadelphia, Pennsylvania. The Partnership will terminate on December 31, 2036, or earlier upon the occurrence of certain events specified in the Partnership Agreement. The general partner of the Partnership was Winthrop Financial Associates, a Limited Partnership, a Maryland Limited Partnership ("WFA"). The initial limited partners of the Partnership were Three Winthrop Properties, Inc. and WFA. Profits and losses from normal operations were allocated 7% to WFA and 93% to the Investor Limited Partners. Cash flow from operations were allocated 3% to WFA and 97% to the Investor Limited Partners. Effective December 16, 1996, WFA withdrew from the partnership as the general partner and assigned 1% of 7% interest to the new general partner, CHA Properties Inc. ("CHA"). WFA retained its remaining 6% interest which was converted to a limited partnership interest but is not considered an investor limited partner. Profits, losses and distributions of the partnership are allocated 1% to the general partner, 6% to WFA and 93% to the investor limited partners. Basis of Presentation The Partnership prepares its financial statements on the accrual basis of accounting. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Investment in Real Estate Investment in real estate is carried at cost. The Partnership depreciates the property on the straight-line method over their estimated useful lives for financial statement purposes. For income tax purposes, accelerated methods and lives are used. Deferred Costs Deferred costs are capitalized and amortized on the straight-line method over the term of the related agreements as discussed in note B. Income Taxes No provision has been made for federal, state or local income taxes in the financial statements of the Partnership. The Partners are required to report on their individual income tax returns their allocable share of income, gains, losses, deductions and credits of the Partnership. The Partnership files its own tax return on the accrual basis. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Partnership and tenants of the property are operating leases. F-24 1365 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents For the purpose of the statement of cash flows, the partnership considers all highly liquid investments to be cash equivalents. The carrying amount in 1996 of $3,873,025 and in 1995 of $431,651 approximates fair value because of the short maturity of this instrument. The following is a summary of deferred costs at December 31, 1996 and 1995:
AMORTIZATION PERIOD 1996 1995 ------------- -------- -------- Acquisition Costs............................. 10/86 - 10/05 $ -- $ 50,000 Mortgage Refinancing Costs.................... 07/90 - 07/97 -- 423,253 Mortgage Loan Costs........................... 12/96 - 01/07 401,400 -- -------- -------- 401,400 473,253 Less: Accumulated Amortization................ 1,080 358,119 -------- -------- Unamortized Costs....................... $400,320 $115,134 ======== ========
NOTE C -- MORTGAGE NOTE PAYABLE The Partnership obtained a mortgage note in the original amount of $22,171,000, payable in equal monthly installments of principal and interest of approximately $188,000 through July 1997. The loan bore a fixed interest rate of 9.85% per year. On December 20, 1996, the Partnership refinanced the mortgage note with Chase Manhattan Bank ("Mortgage Lender") in the aggregate amount of $26,500,000. The new loan bears interest at a rate of 8.375%. Principal and interest are payable by the Partnership in monthly installments of $201,419 commencing on February 1, 1997 through January 1, 2007 with a balloon payment due of $23,460,471. Included in interest expense for the year ended December 31, 1996 is $215,341 of a prepayment penalty paid to the previous lender as a result of the refinancing mortgage note. Principal payments due on the mortgage for the five years following December 31, 1996 are:
DECEMBER 31, - ------------ 1997...................................................... $187,640 1998...................................................... 221,754 1999...................................................... 241,055 2000...................................................... 262,037 2001...................................................... 282,845
The liability of the Partnership under the mortgage limited to the underlying value of the real estate plus other amounts deposited with the lender. The mortgage note is collateralized by the Property, the leases thereon, management agreement and rental income. F-25 1366 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TAXABLE LOSS The Partnership's taxable loss for 1996 and 1995 differs from the net loss for financial reporting purposes primarily due to differences in depreciation. The taxable losses for 1996 and 1995 are as follows:
1996 1995 --------- --------- Net loss for financial reporting purposes................... $(843,418) $(416,981) Plus: Accelerated depreciation on real and personal property.............................................. (7,876) (27,658) Other....................................................... 6,185 4,013 --------- --------- Taxable loss................................................ $(845,109) $(440,626) ========= =========
NOTE E -- MORTGAGE RESERVES HELD IN ESCROW The Partnership has set up various reserve escrows with the Mortgage Lender in connection with the Mortgage Note. The replacement reserve in the amount of $169,999 and $655,502 at December 31, 1996 and 1995, respectively, secures the Partnership's agreement to undertake certain improvements to the Property over the life of the mortgage loan. The amount of this reserve will be reduced as improvements are completed. An escrow for taxes and insurance has been set up under the Mortgage Note Agreement. All taxes and insurance will be paid by the Mortgage Lender out of these escrow accounts. The amounts held in escrow for insurance and taxes at December 31, 1996 and 1995, is $814,812 and $647,224, respectively. In addition, the Partnership was required to enter into a Completion/Repair and Security agreement as part of the mortgage note agreement. The Partnership was required to make an initial deposit of $358,573. The deposit represents 125 percent of the estimated costs to complete the "Repairs" as defined in the agreement. The partnership is required to complete all repairs by June 20, 1997. The balance at December 31, 1996 is $358,573. The Mortgage Lender has the right to draw upon these escrows in the event that the Partnership defaults in the performance of its obligations under the mortgage note, including its obligations to pay principal and interest. The replacement reserve shall be invested in interest bearing instruments. Interest earned during 1996 and 1995 amounted to $19,515 and $20,024, respectively. NOTE F -- RELATED PARTY TRANSACTIONS The Partnership has incurred charges by and commitments to companies affiliated by common ownership and management with CHA and WFA. Related party transactions with WFA and its affiliates include the following: Administrative and rental expenses includes $119,543 and $121,032 in 1996 and 1995, respectively, representing investor service fees as well as $177,724 and $176,430 in 1996 and 1995, respectively, representing consulting management fees equal to 2.5% of gross collections. Both fees are paid to affiliates of CHA and WFA. An affiliate of CHA and WFA is the on-site management agent of the property. Administrative and rental expenses includes $248,814 and $243,532 in 1996 and 1995, respectively, representing a property management fee, equal to 3.5% of gross collections, paid to the affiliate. In connection with the refinancing of the mortgage note on December 20, 1996, the Partnership paid an affiliate of the general partner a refinancing fee of $198,750. F-26 1367 CHESTNUT HILL ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE G -- CONCENTRATION OF CREDIT RISK At December 31, 1996, the Partnership has cash in the amount of $1,343,384 held by the Mortgage Lender. The tax and insurance account is insured by the Federal Deposit Insurance Corporation up to $100,000 an account. The uninsured portion of this balance at December 31, 1996 is $258,573. At December 31, 1996, the Partnership had bank deposits in excess of federally-insured limits by $15,806. NOTE H -- TENDER OFFER OF LIMITED PARTNERSHIP INTEREST On November 4, 1996, Lon-Chestnut Hill Associates L.L.C., a Delaware limited partnership, an affiliate of Winthrop Financial Associates, A Limited Partnership ("WFA"), the original general partner of the Partnership, offered to purchase up to 119 units of limited partnership interest in the Partnership for cash consideration of $20,000 per unit (the "Offer"). The Offer was originally scheduled to expire on December 6, 1996. The expiration date of the Offer was extended to December 13, 1996 at which time approximately 119 units of limited partnership interest in the Partnership had been tendered pursuant to the Offer. NOTE I -- COMMITMENTS Lead Based Paint Agreement In connection with the refinancing of the mortgage note, the Partnership was required to perform an environmental assessment of the Property. It was determined through sampling and analysis that part of the Property may contain "Lead Based Paint". As a condition to the making of the mortgage note, the Partnership is required to develop, implement and carry out an operations and maintenance plan for "Lead Based Paint" on the Property ("O & M Plan"). The "O & M Plan" requires that in event the Partnership desires to make renovations to or demolish the Property or any portion, thereof, the Partnership is required to have all painted surfaces (including all underlying paint layers) at the Property that are being renovated or demolished tested for the presence of Lead Based Paint by a qualified environmental consultant. If such tests indicate the presence of Lead Based Paint at the Property, the Partnership is required at their expense, to remove all Lead Based Paint in accordance with all applicable local, state and federal laws. Asbestos Operations and Maintenance Agreement As a condition of making the loan, the Partnership has agreed to develop an operations and maintenance program for the Property with respect to the presence of asbestos (the "O & M Program"). The Operations and Maintenance Program has been established to minimize potential exposures to asbestos fibers from asbestos containing material ("ACM") present in the property. The program has been designed to reduce the possibility of disturbing ACM during maintenance, repair and renovation activities. F-27 1368 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 1369 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 1370 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 September , 1998 A-3 1371 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF COASTAL COMMONS 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 1372 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 Comparison of Tax-Deferral % Preferred OP Units and Class I Preferred Stock.......... S-16 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 Coastal Commons 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-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-36 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-41 Fees and Expenses............................ S-42
PAGE ---- Accounting Treatment......................... S-42 DESCRIPTION OF PREFERRED OP UNITS.............. S-43 General...................................... S-43 Ranking...................................... S-43 Distributions................................ S-43 Allocation................................... S-44 Liquidation Preference....................... S-44 Redemption................................... S-45 Voting Rights................................ S-45 Restrictions on Transfer..................... S-45 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-48 CERTAIN FEDERAL INCOME TAX MATTERS............. S-51 Tax Consequences of Exchanging Units Solely for OP Units............................... S-51 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-51 Tax Consequences of Exchanging Units Solely for Cash................................... S-52 Adjusted Tax Basis........................... S-52 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-53 Passive Activity Losses...................... S-53 Foreign Offerees............................. S-54 Certain Tax Consequences to Non-Tendering and Partially-Tendering Unitholders............ S-54 VALUATION OF UNITS............................. S-55 FAIRNESS OF THE OFFER.......................... S-56 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-56 Fairness to Unitholders who Tender their Units...................................... S-57 Fairness to Unitholders who do not Tender their Units................................ S-58 Comparison of Consideration to Alternative Consideration.............................. S-58 Allocation of Consideration.................. S-59 STANGER ANALYSIS............................... S-59 Experience of Stanger........................ S-60 Summary of Materials Considered.............. S-60 Summary of Reviews........................... S-61 Conclusions.................................. S-61 Assumptions, Limitations and Qualifications............................. S-61 Compensation and Material Relationships...... S-62 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-64 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-69 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
i 1373
PAGE ---- Future Exchange Offers....................... S-73 YOUR PARTNERSHIP............................... S-74 General...................................... S-74 Your Partnership and its Property............ S-74 Property Management.......................... S-74 Investment Objectives and Policies; Sale or Financing of Investments................... S-74 Capital Replacement.......................... S-75 Borrowing Policies........................... S-75 Competition.................................. S-75 Legal Proceedings............................ S-75 Selected Financial Information............... S-75 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-77 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79
PAGE ---- Distributions and Transfers of Units......... S-79 Beneficial Ownership of Interests in Your Partnership................................ S-80 Compensation Paid to the General Partner and its Affiliates............................. S-80 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 1374 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 Coastal Commons 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 1375 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)............................... $ $ $ -- $ -- Third Quarter.......................... 41 30 15/16 -- -- 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 1376 - 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 $1,113.75 per unit for the six months ended June 30, 1998 (equivalent to $2,227.50 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 distributions of $ 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 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 1377 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer 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. In addition, 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1378 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 100% of 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? 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: 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 1379 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 1380 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. 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. 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 5 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. 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 S-7 1381 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. 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 Code. The particular tax consequences to you of the exchange 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 1382 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 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. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the offer. 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. S-9 1383 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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 1384 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, 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 1385 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 1386 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 the opportunity to participate in the growth of our enterprise and would benefit from any future S-13 1387 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 1388 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 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 1389 COMPARISON OF TAX-DEFERRAL % PREFERRED OP UNITS AND CLASS I PREFERRED STOCK There are a number of significant differences between Tax-Deferral % Preferred OP Units and Class I Preferred Stock relating to, among other things, the nature of the investment, voting rights, distributions, liquidity and transfer and redemption rights. See "Comparison of Preferred OP Units and Class I Preferred Stock" for a chart highlighting such differences. 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 1390 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 100% of 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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. S-17 1391 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-1 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 is not subject to such limitations. 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives 1/4 of 1% of gross operating revenues of your partnership's property, payable monthly, and may receive reimbursement for expenses generated in its capacity as general partner of your partnership. The property manager received management fees of $82,000 in 1996, $87,000 in 1997 and $44,102 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 S-18 1392 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 Your Partnership and its Property. Coastal Commons Limited Partnership is a South Carolina limited partnership which was formed on June 29, 1984 for the purpose of owning and operating a single apartment property located in Mt. Pleasant, South Carolina, known as "Hibben Ferry Apartments". In 1984, it completed a private placement of units that raised net proceeds of approximately $15,300,000. Hibben Court Apartments consists of 240 apartment units. Your partnership has no employees. Property Management. Since December 1990, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2014, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $6,209,522, payable to First Union National Bank, which bears interest at a rate of 8.08%. The mortgage debt is due in July, 2002. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1393 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 dated 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 1394
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 1395 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 the 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 1396
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 1397 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
COMPARATIVE PER UNIT DATA Set forth below are historical and pro forma cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING AIMCO OPERATING PARTNERSHIP PARTNERSHIP YOUR PARTNERSHIP HISTORICAL PRO FORMA HISTORICAL ------------------------- ------------------------- --------------------------- SIX MONTHS SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 1998 1997 1998 1997 1998 1997 ---------- ------------ ---------- ------------ ----------- ------------- Cash distributions per unit outstanding................... $1.125 $1.85 $1.125 $1.85 $0.00 $0.00
S-24 1398 SUMMARY FINANCIAL INFORMATION OF COASTAL COMMONS LIMITED PARTNERSHIP The summary financial information of Coastal Commons Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Coastal Commons 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 of Your Partnership" included herein. See "Index to Financial Statements." COASTAL COMMONS LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues.............. $ 851,122 $ 856,862 $ 1,780,000* $ 1,668,000 $ 1,539,954 $ 1,526,123 $ 1,638,858 Net Income/(Loss)........... 28,813 26,714 113,000* (219,000) (289,081) (331,825) (275,723) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation.............. $ 2,045,497 $ 2,343,633 $ 2,197,000* $ 2,479,000 $ 2,769,008 $ 3,082,967 $ 3,436,637 Total Assets................ 4,487,013 4,690,717 4,666,000* 4,763,000 5,009,168 4,985,436 5,337,744 Mortgage Notes Payable, including Accrued Interest.................. 6,252,303 6,313,692 6,240,000* 6,342,000 6,396,453 6,068,240 6,142,868 Partners' Deficit........... $(1,896,164) $(1,775,312) $(1,689,000)* $(1,702,000) $(1,482,520) $(1,193,439) $ (861,614)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $1,113.75 $495
- --------------- * Information prepared on an Income Tax Basis. S-25 1399 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. 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 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 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. S-26 1400 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 solely 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 Code. 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 therefore 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 S-27 1401 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. 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 1998 were $1,113.75 per unit (equivalent to $2,227.50 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 an 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 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 S-28 1402 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. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the offer. 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 Code. MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, Moody's Investors Service revised its outlook for the ratings of AIMCO to negative from stable 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. Moody's 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, Moody's confirmed its existing rating on AIMCO's existing preferred stock and senior debt. S-29 1403 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only option for liquidation would be to sell your units in a private transaction. S-30 1404 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 would 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 apartment 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 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 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 1405 - 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 1406 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-33 1407 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 1408 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. 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. S-35 1409 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." 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. 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. S-36 1410 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, (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 9:00 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 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, Denver, Colorado time. S-37 1411 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-38 1412 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. 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 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 S-39 1413 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 or 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 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 S-40 1414 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-41 1415 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. 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. 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-42 1416 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-43 1417 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 payment. 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 OP Units and any such S-44 1418 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-45 1419 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-46 1420 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-47 1421 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-48 1422 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-49 1423 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-50 1424 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-51 1425 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-52 1426 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-53 1427 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 UNITHOLDERS 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 unitholders who do not tender all of their units (a "Remaining Unitholders") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Unitholder will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Unitholders in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Unitholder'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 Unitholders 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 Unitholders 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 unitholder 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 unitholders. In the case of a Remaining Unitholder 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 unitholder's taxable income for the year of Termination. S-54 1428 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-55 1429 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-56 1430 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 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, a third party expert, 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 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 1998 were 1,113.75 (equivalent to 2,227.50 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-57 1431 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-58 1432 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. 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-59 1433 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-60 1434 performed a site inspection 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 September 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 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 property was 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 S-61 1435 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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 S-62 1436 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-63 1437 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Hibben Ferry Apartments. 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, 2014. 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, operate, The purpose of the AIMCO Operating Partnership is to lease and manage your partnership's property. Subject conduct any business that may be lawfully conducted by to restrictions contained in your partnership's a limited partnership organized pursuant to the agreement of limited partnership, your partnership may Delaware Revised Uniform Limited Partnership Act (as perform all act necessary, advisable or convenient to amended from time to time, or any successor to such the business of your partnership including borrowing statute) (the "Delaware Limited Partnership Act"), 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-64 1438 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership authorized to The general partner is authorized to issue additional issue additional limited partnership interests in your partnership interests in the AIMCO Operating partnership and may admit additional limited partners Partnership for any partnership purpose from time to by selling not more than 200 units for cash and notes 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 partners may not enter into funds or other assets to its subsidiaries or other contracts with themselves or their affiliates, except persons in which it has an equity investment, and such for the agreement specified in your partnership's persons may borrow funds from the AIMCO Operating agreement of limited partnership in connection with the Partnership, on terms and conditions established in the acquisition, operation, management and ownership of sole and absolute discretion of the general partner. To your partnership's property. Your partnership may not the extent consistent with the business purpose of the make loans to any of the general partners but the AIMCO Operating Partnership and the permitted general partners may make loans to your partnership in activities of the general partner, the AIMCO Operating such amounts as the general partners deem necessary for Partnership may transfer assets to joint ventures, the payment of any partnership obligations and limited liability companies, partnerships, expenses; provided that the interest is 1% over the corporations, business trusts or other business then prevailing prime rate of The Citizens and Southern entities in which it is or thereby becomes a National Bank of South Carolina for short-term, participant upon such terms and subject to such unsecured loans (but not in any case higher than the conditions consistent with the AIMCO Operating Part- legal rate) and the general partners first make a nership Agreement and applicable law as the general reasonable effort to obtain loans at the most favorable partner, in its sole and absolute discretion, believes rate from unaffiliated parties. 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 in such amounts as the general partner restrictions on borrowings, and the general partner has deems, in its reasonable discretion, to be in the best full power and authority to borrow money on behalf of interests of your partnership, on the credit of and the AIMCO Operating Partnership. The AIMCO Operating enter into obligations, recourse and nonrecourse, on Partnership has credit agreements that restrict, among behalf of your partnership and to give as security other things, its ability to incur indebtedness. See therefor any of your partnership's property. However, a "Risk Factors -- Risks of Significant Indebtedness" in refinancing of your partnership's property must be the accompanying Prospectus. approved by the general partner.
S-65 1439 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 or its duly authorized with a statement of the purpose of such demand and at representative to receive by mail, upon written request such OP Unitholder's own expense, to obtain a current to your partnership and at such limited partner's sole list of the name and last known business, residence or cost and expense, a list of names and addresses of the mailing address of the general partner and each other limited partners. OP Unitholder.
Management Control The general partner of your partnership has the All management powers over the business and affairs of responsibility to direct the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business and assets and has all rights Inc., which is the general partner. No OP Unitholder and powers generally conferred by law or which are has any right to participate in or exercise control or necessary, advisable or consistent in connection management power over the business and affairs of the therewith. The general partner of your partnership has AIMCO Operating Partnership. The OP Unitholders have the power and authority to execute documents and the right to vote on certain matters described under instruments in its sole name on behalf of your "Comparison of Ownership of Your Units and AIMCO OP partnership. No limited partner may take part in or Units -- Voting Rights" below. The general partner may interfere in any manner with the conduct or control of not be removed by the OP Unitholders with or without the business of your partnership. Limited partners have cause. no right or authority to act for or bind the corporation. 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 acts performed or any Partnership for losses sustained, liabilities incurred failure to act by any of them performed or omitted in or benefits not derived as a result of errors in good faith, provided that such course of conduct did judgment or mistakes of fact or law of any act or not constitute fraud, gross negligence or willful omission if the general partner acted in good faith. misconduct. In addition, the general partner and its The AIMCO Operating Partnership Agreement provides for affiliates are entitled to indemnification by your indemnification of AIMCO, or any director or officer of partnership against any loss or damage resulting from AIMCO (in its capacity as the previous general partner any act or omission performed or omitted in good faith, of the AIMCO Operating Partnership), the general which does not constitute fraud, gross negligence or partner, any officer or director of general partner or willful misconduct. Moreover, the general partner is the AIMCO Operating Partnership and such other persons not liable to your partnership or the limited partners as the general partner may designate from and against because any taxing authorities disallowed or adjusted all losses, claims, damages, liabilities, joint or any deductions or credits in your partnership income several, expenses (including legal fees), fines, tax returns. 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 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
S-66 1440 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 the 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 the limited partners owning a majority partner may not be removed as general partner of the of the outstanding units. The general partner may AIMCO Operating Partnership by the OP Unitholders with resign at any time; provided, however that such or without cause. Under the AIMCO Operating Partnership resignation does not cause the default under or result Agreement, the general partner may, in its sole in the acceleration of the payment of any loan secured discretion, prevent a transferee of an OP Unit from by your partnership's property. A limited partner may becoming a substituted limited partner pursuant to the not transfer his interests without the consent of the AIMCO Operating Partnership Agreement. The general general partner which may be withheld at the sole partner may exercise this right of approval to deter, discretion of the 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 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 to comply with in the AIMCO Operating Partnership Agreement, whereby applicable laws, make changes of a ministerial nature the general partner may, without the consent of the OP which do not materially and adversely affect the rights Unitholders, amend the AIMCO Operating Partnership of the limited partners and admit substitute or Agreement, amendments to the AIMCO Operating additional limited partners. Any other amendments must Partnership Agreement require the consent of the be approved by the limited partners owning more than holders of a majority of the outstanding Common OP 50% of the units and the general partner. Limited Units, excluding AIMCO and certain other limited partners owning at least 20% of the units have the exclusions (a "Majority in Interest"). Amendments to power to propose amendments to your partnership's the AIMCO Operating Partnership Agreement may be agreement of limited partnership. proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives 1/4 of 1% of gross operating revenues of your capacity as general partner of the AIMCO Operating partnership's property, payable monthly. Moreover, the Partnership. In addition, the AIMCO Operating Part- general partner or certain affiliates may be entitled nership is responsible for all expenses incurred to compensation for additional services rendered. 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-67 1441 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, unless it is deemed to negligence, no OP Unitholder has personal liability for be taking part in the control of the business, is not the AIMCO Operating Partnership's debts and bound by or personally liable for the expenses, obligations, and liability of the OP Unitholders for liabilities or obligations of your partnership. A the AIMCO Operating Partnership's debts and obligations limited partner's liability is limited solely to the is generally limited to the amount of their invest- amount of its capital contribution to your partnership, ment in the AIMCO Operating Partnership. However, the together with the undistributed share of the profits of limitations on the liability of limited partners for your partnership from time to time credited to its the obligations of a limited partnership have not been capital account and any money or other property clearly established in some states. If it were wrongfully paid or conveyed to him on account of his determined that the AIMCO Operating Partnership had contribution. 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 an overriding partnership agreement, Delaware law generally requires fiduciary obligation to your partnership. The general a general partner of a Delaware limited partnership to partner is not required to devote all of its time or adhere to fiduciary duty standards under which it owes business efforts to the affairs of your partnership, its limited partners the highest duties of good faith, but shall devote so much of its time and attention to fairness and loyalty and which generally prohibit such your partnership as is necessary and advisable to general partner from taking any action or engaging in successfully manage the affairs of your partnership. In any transaction as to which it has a conflict of addition, any partner or affiliate may engage in or interest. The AIMCO Operating Partnership Agreement possess an interest in other business ventures of every expressly authorizes the general partner to enter into, nature and description, whether such ventures are on behalf of the AIMCO Operating Partnership, a right competitive with your partnership or otherwise, which of first opportunity arrangement and other conflict may be located in the market area or vicinity of your avoidance agreements with various affiliates of the partnership's property and neither your partnership nor AIMCO Operating Partnership and the general partner, on the partners shall have any right in or to such such terms as the general partner, in its sole and independent ventures or to the income or profits absolute discretion, believes are advisable. The AIMCO derived therefrom. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-68 1442 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 units the holders of the Preferred OP respect to certain limited matters and the approval of the general Units will have the same voting such as certain amendments and partner, the limited partners may 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, terminate Units" in the accompanying transactions such as the your partnership and approve or Prospectus. So long as any institution of bankruptcy disapprove the sale of all or Preferred OP Units are outstand- proceedings, an assignment for the substantially all of the assets of ing, in addition to any other vote benefit of creditors and certain your partnership. The removal of or consent of partners required by transfers by the general partner of the general partner and the law or by the AIMCO Operating its interest in the AIMCO Operating election a trustee to Partnership Agree- Part-
S-69 1443 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS liquidate and distribute your ment, the affirmative vote or nership or the admission of a partnership's assets upon a consent of holders of at least 50% successor general partner. dissolution caused by the of the outstanding Preferred OP retirement of the general partner Units will be necessary for Under the AIMCO Operating Partner- both require the vote of a majority effecting any amendment of any of ship Agreement, the general partner of the outstanding units. The the provisions of the Partnership has the power to effect the affirmative vote of all limited Unit Designation of the Preferred acquisition, sale, transfer, partners and the approval of the OP Units that materially and exchange or other disposition of general partner is required to adversely affects the rights or any assets of the AIMCO Operating elect a substitute general partner. preferences of the holders of the Partnership (including, but not Preferred OP Units. The creation or limited to, the exercise or grant The general partner may cause the issuance of any class or series of of any conversion, option, dissolution of the your partnership partnership units, including, privilege or subscription right or by retiring. Your partnership may without limitation, any partner- any other right available in be continued by the remaining ship units that may have rights connection with any assets at any general partner or, if none, all of senior or superior to the Preferred time held by the AIMCO Operating the limited partners may agree to OP Units, shall not be deemed to Partnership) or the merger, continue your partnership and elect materially adversely affect the consolidation, reorganization or a successor to 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 Net Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operation 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 made not less often the fifth anniversary of the issue determine, of Available Cash (as than semi-annually. The date of the Preferred OP Units, the defined in the AIMCO Operating distributions payable to the AIMCO Operating Partnership may Partnership Agreement) generated by partners are not fixed in amount adjust the annual distribution rate the AIMCO Operating Partnership and depend upon the operating on the Preferred OP Units to the during such quarter to the general 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. Your of five years, and (ii) the annual established by the general partner partnership has made distri- dividend rate on the most recently with respect to such quarter, in butions in the past and is issued AIMCO non-convertible accordance with their respective projected to make distributions in preferred stock which ranks on a interests in the AIMCO Operating 1998. parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-70 1444 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 and be Preferred OP Units and the OP Units. The AIMCO Operating Part- substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the such person if: (1) the transfer on any securities exchange. The transferability of the OP Units. complies with the then-applicable Preferred OP Units are subject to Until the expiration of one year rules and regulations of any restrictions on transfer as set from the date on which an OP governmental authority with forth in the AIMCO Operating Unitholder acquired OP Units, jurisdiction over the disposi- Partnership Agreement. subject to certain exceptions, such tion, (2) except in specified OP Unitholder may not transfer all circumstances, the interest Pursuant to the AIMCO Operating or any portion of its OP Units to transferred is not less than 1 Partnership Agreement, until the any transferee without the consent unit, (3) a written assignment has expiration of one year from the of the general partner, which been duly executed and ac- date on which a holder of Preferred consent may be withheld in its sole knowledged by the assignor and OP Units acquired Preferred OP and absolute discretion. After the assignee, (4) the approval of the Units, subject to certain expiration of one year, such OP general partner which may be exceptions, such holder of Unitholder has the right to withheld in the sole and absolute Preferred OP Units may not transfer transfer all or any portion of its discretion of the general partner all or any portion of its Pre- OP Units to any person, subject to has been granted and (5) the ferred OP Units to any transferee the satisfaction of certain assignor and assignee have complied without the consent of the general conditions specified in the AIMCO with such other conditions as set partner, which consent may be Operating Partnership Agreement, forth in your partnership's withheld in its sole and absolute including the general partner's agreement of limited partnership. discretion. After the expiration of right of first refusal. See one year, such holders of Preferred "Description of OP Units -- There are no redemption rights OP Units has the right to transfer Transfers and Withdrawals" in the associated with your units. all or any portion of its Preferred accompanying Prospectus. OP Units to any person, subject to the satisfaction of
S-71 1445 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-72 1446 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives 1/4 of 1% of gross operating revenues of your partnership's property, payable monthly, and may receive reimbursement for expenses generated in its capacity as general partner from your partnership. The property manager received management fees of $82,000 in 1996, $87,000 in 1997 and $44,102 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's 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'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 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 1447 YOUR PARTNERSHIP GENERAL Coastal Commons Limited Partnership is a South Carolina limited partnership which raised net proceeds of approximately $15,300,000 in 1984 through a private offering. The promoter for the private offering of your partnership was US Shelter Corporation. Insignia acquired your partnership in December 1990. AIMCO acquired Insignia in October, 1998. There are currently a total of 229 limited partners of your partnership and a total of 200 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on June 29, 1984 for the purpose of owning and operating a single apartment property located in Mt. Pleasant, South Carolina, known as "Hibben Ferry Apartments." Your partnership's property consists of 240 apartment units. There are 48 one-bedroom apartments and 192 two-bedroom apartments. The total rentable square footage of your partnership's property is 234,480 square feet. Your partnership's property had an average occupancy rate of approximately 92.92% in 1996 and 92.92% in 1997. The average annual rent per apartment unit is approximately $6,844. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1990, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $82,000, $87,000 and $44,102, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2014 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-74 1448 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $6,209,522, payable to First Union National Bank, which bears interest at a rate of 8.08%. The mortgage debt is due in July, 2002. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-75 1449 Below is selected financial information for Coastal Commons Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
COASTAL COMMONS LIMITED PARTNERSHIP ------------------------------------------------------------------------------------------------ JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (1) (1) (1) (1) (1) (1) (1) BALANCE SHEET DATA Cash and Cash Equivalents..... $ 404,974 $ 363,729 $ 452,000* $ 346,000 $ 220,858 $ 188,456 $ 278,430 Land & Building............... 9,262,464 9,215,206 9,241,000* 9,178,000 9,115,731 9,024,868 8,983,185 Accumulated Depreciation...... (7,216,967) (6,871,573) (7,084,000)* (6,699,000) (6,346,723) (5,941,901) (5,546,548) Other Assets.................. 2,036,542 1,983,355 9,000* 1,938,000 2,019,302 1,714,013 1,622,677 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets......... $ 4,487,014 $ 4,690,717 $ 4,666,000* $ 4,763,000 $ 5,009,168 $ 4,985,436 $ 5,337,744 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest... 6,252,303 6,313,692 6,240,000* 6,342,000 6,396,453 6,068,240 6,142,868 Other Liabilities............. 130,874 152,337 52,000* 123,000 95,235 110,635 152,490 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities.... $ 6,383,177 $ 6,466,029 $ 6,355,000* $ 6,465,000 $ 6,491,688 $ 6,178,875 $ 6,295,358 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Deficit.............. $(1,896,164) $(1,775,312) $(1,689,000)* $(1,702,000) $(1,482,520) $(1,193,439) $ (861,614) =========== =========== =========== =========== =========== =========== ===========
COASTAL COMMONS LIMITED PARTNERSHIP ------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------- --------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- ---------- ---------- ---------- ---------- ---------- (1) (1) (1) (1) (1) (1) (1) (1) STATEMENT OF OPERATIONS DATA Rental Revenue....................... $799,638 $794,057 $1,665,000* $1,520,000 $1,438,405 $1,461,849 $1,492,961 Other Income......................... 51,484 62,805 115,000* 148,000 101,549 64,274 145,897 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Revenue............... $851,122 $856,862 1,780,000* $1,668,000 $1,539,954 $1,526,123 $1,638,858 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................... 321,064 322,235 624,000* 853,000 656,850 616,339 623,893 General & Administrative............. 11,193 6,877 48,000* 28,000 74,334 87,647 101,787 Depreciation......................... 172,500 172,500 345,000* 352,000 404,822 395,353 390,747 Interest Expense..................... 265,126 267,766 534,000* 539,000 577,734 633,840 641,165 Property Taxes....................... 57,426 60,770 116,000* 115,000 115,295 124,769 89,106 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Expenses.............. $827,309 $830,148 1,667,000* $1,887,000 $1,829,035 $1,857,948 $1,846,698 -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (loss).................... $ 23,813 $ 26,714 $ 113,000* $ (219,000) $ (289,081) $ (331,825) $ (207,840) ======== ======== ========== ========== ========== ========== ========== Extraordinary (loss)................. $ $ $ $ $ $ (67,883) -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (loss).................... $ $ $ $ $ $ (275,723) ======== ======== ========== ========== ========== ========== ==========
- --------------- (1) Information prepared on an Income Tax Basis. S-76 1450 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $23,813 for the six months ended June 30, 1998, compared to $26,714 for the six months ended June 30, 1997, a decrease in net income of $2,901, or 10.86%. This decrease was primarily the result of a greater increase in operating expenses than in rental revenues. Revenues Rental and other property revenues from the partnership's property totaled $851,122 for the six months ended June 30, 1998, compared to $856,862 for the six months ended June 30, 1997, a decrease of $5,740, or 0.67%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $321,064 for the six months ended June 30, 1998, compared to $322,235 for the six months ended June 30, 1997, a decrease of $1,171 or 0.36%. Management expenses totaled $44,101 for the six months ended June 30, 1998, compared to $42,639 for the six months ended June 30, 1997, an increase of $1,462, or 3.43%. General and Administrative Expenses General and administrative expenses totaled $11,193 for the six months ended June 30, 1998 compared to $6,877 for the six months ended June 30, 1997, an increase of $4,316 or 62.76%. The increase is primarily due to an increase in training expenses and office supply expenses. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $265,126 for the six months ended June 30, 1998, compared to $267,766 for the six months ended June 30, 1997, a decrease of $2,640, or 0.99%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $113,000 for the year ended December 31, 1997, compared to a net loss of $219,000 for the year ended December 31, 1996. The increase in net income of $332,000 was primarily the result of an increase in market rent and decrease in maintenance expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,780,000 for the year ended December 31, 1997, compared to $1,668,000 for the year ended December 31, 1996, an increase of $112,000, or 6.71%. This increase was primarily the result of an increase in market rent and an increase in occupancy levels. S-77 1451 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $624,000 for the year ended December 31, 1997, compared to $853,000 for the year ended December 31, 1996, a decrease of $229,000 or 26.85%. This decrease was primarily the result of a decrease in maintenance expenses. Management expenses totaled $87,000 for the year ended December 31, 1997, compared to $82,000 for the year ended December 31, 1996, a increase of $5,000, or 6.10%. This increase was primarily the result of an increase in rental revenue, as management fees are calculated based on a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $48,000 for the year ended December 31, 1997 compared to $28,000 for the year ended December 31, 1996, an increase of $20,000 or 71.43%. The increase is primarily due to a increase in general partner reimbursements and audit fees, as well as in office supplies. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $534,000 for the year ended December 31, 1997, compared to $539,000 for the year ended December 31, 1996, a decrease of $5,000, or 0.93%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $219,000 for the year ended December 31, 1996, compared to a net loss of $289,081 for the year ended December 31, 1995. The increase in net income of $70,081 was primarily the result of an increase in revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,668,000 for the year ended December 31, 1996, compared to $1,539,954 for the year ended December 31, 1995, an increase of $128,046, or 8.31%. This increase was primarily a result of an increase in demand for corporate units from the Coast Guard and a steel company. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $853,000 for the year ended December 31, 1996, compared to $656,850 for the year ended December 31, 1995, an increase of $196,150 or 29.86%. This increase was primarily the result of an increase in maintenance expense resulting from gutter repairs. Management expenses totaled $82,000 for the year ended December 31, 1996, compared to $77,155 for the year ended December 31, 1995, an increase of $4,845, or 6.28%. The increase resulted from an increase in rental income. General and Administrative Expenses General and administrative expenses totaled $28,000 for the year ended December 31, 1996 compared to $74,334 for the year ended December 31, 1995, a decrease of $46,334 or 62.33%. The decrease is primarily due to a decrease in legal and professional expenses as well as reclassing various general and administrative expenses for 1995 to operating expenses for 1996. S-78 1452 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $539,000 for the year ended December 31, 1996, compared to $577,734 for the year ended December 31, 1995, a decrease of $38,734, or 6.70%. The decrease is due primarily to refinancing mortgage note payable which was due April 1995. Liquidity and Capital Resources As of June 30, 1998, your partnership had $404,974 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 acts performed or any failure to act by any of them performed or omitted in good faith, provided that such course of conduct did not constitute fraud, gross 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 a provision in your partnership's agreement of limited partnership. The general partner of your partnership is owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates are entitled to indemnification by your partnership against any loss or damage resulting from any act or omission performed or omitted in good faith, which does not constitute fraud, gross negligence or willful misconduct. Moreover, the general partner is not liable to your partnership or the limited partners because any taxing authorities disallowed or adjusted any deductions or credits in your partnership income tax returns. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 0 1995........................................................ 0 1996........................................................ 0 1997........................................................ 495.00 1998 (through June 30)...................................... 1,113.75
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the S-79 1453 admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0.0% 0 1995......................... 0 0.0% 0 1996......................... 0 0.0% 0 1997......................... 1 .5% 1 1998 (through June 30)....... 0 0.0% 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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.................................................... $13,020 1995.................................................... 18,245 1996.................................................... 16,000 1997.................................................... 16,000
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995................................................... $77,155 1996................................................... 82,000 1997................................................... 87,000 1998 (through June 30)................................. 44,102
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 company paid to the property manager or AIMCO and its affiliates. S-80 1454 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 audited financial statements of Coastal Commons Limited Partnership at December 31, 1997, 1996 and 1995 and for each of the years then ended, appearing in this Prospectus Supplement have been audited by Ernst & Young, LLP independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-81 1455 COASTAL COMMONS LIMITED PARTNERSHIP INDEX FINANCIAL STATEMENT
PAGE ---- Condensed Balance Sheet -- Federal Income Tax Basis as of June 30, 1998 (Unaudited)................................. F-2 Condensed Statements of Operations -- Federal Income Tax Basis for the six months ended June 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Statements of Cash Flows -- Federal Income Tax Basis for the six months ended June 30, 1998 and 1997 (Unaudited)............................................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-6 Consolidated Balance Sheet as of December 31, 1997.......... F-7 Consolidated Statement of Operations for the year ended December 31, 1997......................................... F-8 Consolidated Statement of Changes in Partners' Deficit for the year ended December 31, 1997.......................... F-9 Consolidated Statement of Cash Flows for the year ended December 31, 1997......................................... F-10 Notes to Consolidated Financial Statements.................. F-11 Independent Auditors' Report................................ F-16 Statement of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis as of December 31, 1997...................................................... F-17 Statement of Revenues, Expenses and Changes in Partners' Deficit -- Federal Income Tax Basis for the year ended December 31, 1997......................................... F-18 Notes to Financial Statements -- Federal Income Tax Basis... F-19 Independent Auditors' Report................................ F-22 Statement of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis as of December 31, 1996...................................................... F-23 Statement of Revenues, Expenses and Changes in Partners' Deficit -- Federal Income Tax Basis for the year ended December 31, 1996......................................... F-24 Notes to Financial Statements -- Federal Income Tax Basis... F-25 Independent Auditors' Report................................ F-28 Statement of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis as of December 31, 1995...................................................... F-29 Statement of Revenues, Expenses and Changes in Partners' Deficit -- Federal Income Tax Basis for the year ended December 31, 1995......................................... F-30 Notes to Financial Statements -- Federal Income Tax Basis... F-31
F-1 1456 COASTAL COMMONS LIMITED PARTNERSHIP CONDENSED BALANCE SHEET -- FEDERAL INCOME TAX BASIS JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 404,974 Receivables and Deposits.................................... 64,958 Restricted Escrows.......................................... 152,426 Syndication Fees............................................ 1,605,000 Other Assets................................................ 214,159 Investment Property: Land...................................................... 684,299 Building and related personal property.................... 8,578,165 ---------- 9,262,464 Less: Accumulated depreciation............................ 7,216,967 2,045,497 ---------- ----------- Total Assets...................................... $ 4,487,014 =========== LIABILITIES AND PARTNERS' CAPITAL Other Accrued Liabilities................................... $ 69,883 Property taxes payable...................................... 57,419 Tenant security deposits.................................... 46,354 Notes Payable............................................... 6,209,522 Partners' Deficit........................................... (1,896,164) ----------- Total Liabilities and Partners' Capital........... $ 4,487,014 ===========
F-2 1457 COASTAL COMMONS LIMITED PARTNERSHIP CONDENSED STATEMENTS OF OPERATIONS -- FEDERAL INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $799,638 $794,057 Other Income.............................................. 51,484 62,805 (Gain) Loss on Disp of Property........................... -- -- Casualty Gain/Loss........................................ -- -- -------- -------- Total Revenues.................................... 851,122 856,862 Expenses: Operating Expenses........................................ 321,064 322,235 General and Administrative Expenses....................... 11,193 6,877 Depreciation Expense...................................... 172,500 172,500 Interest Expense.......................................... 265,126 267,766 Property Tax Expense...................................... 57,426 60,770 -------- -------- Total Expenses.................................... 827,309 830,148 Net Income........................................ $ 23,813 $ 26,714 ======== ========
F-3 1458 COASTAL COMMONS LIMITED PARTNERSHIP CONDENSED STATEMENTS OF CASH FLOWS -- FEDERAL INCOME TAX BASIS UNAUDITED
SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 --------- --------- Operating Activities: Net Income (loss)......................................... $ 23,813 $ 26,714 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 186,022 186,022 Changes in accounts: Receivables and deposits and other assets............ (5,639) (31,973) Accounts Payable and accrued expenses................ 58,656 29,118 --------- --------- Net cash provided by (used in) operating activities...................................... 262,852 209,881 --------- --------- Investing Activities Property improvements and replacements.................... (20,997) (37,133) Net (increase)/decrease in restricted escrows............. (27,426) (26,904) Net cash provided by (used in) investing activities...................................... (48,423) (64,037) --------- --------- Financing Activities Payments on mortgage...................................... (30,478) (28,089) Partners' Distributions................................... (230,977) (100,026) --------- --------- Net cash provided by (used in) financing activities...................................... (261,455) (128,115) --------- --------- Net increase (decrease) in cash and cash equivalents..................................... (47,026) 17,729 Cash and cash equivalents at beginning of year.............. 452,000 346,000 --------- --------- Cash and cash equivalents at end of period.................. $ 404,974 $ 363,729 ========= =========
F-4 1459 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED) NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Coastal Commons Limited Partnership as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with the accounting basis for federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis for federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 1460 REPORT OF INDEPENDENT AUDITORS The Partners Coastal Commons Limited Partnership We have audited the accompanying consolidated balance sheet of Coastal Commons Limited Partnership as of December 31, 1997 and the related consolidated statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Coastal Commons Limited Partnership at December 31, 1997 and the consolidated results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP August 31, 1998 Greenville, South Carolina F-6 1461 COASTAL COMMONS LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 459 Receivables and deposits.................................... 57 Restricted escrows.......................................... 160 Loan costs, net of $65 amortization......................... 125 Other assets................................................ 9 Investment property, at cost (Notes B and D): Land...................................................... $ 684 Buildings and related personal property................... 8,648 ------- 9,332 Less accumulated depreciation............................. (4,338) 4,994 ------- ------ $5,804 ====== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 23 Security deposits and other tenant liabilities............ 41 Other liabilities......................................... 110 Mortgage note payable (Note B)............................ 6,240 ------ 6,414 Minority interest (Note A).................................. 18 Partners' deficit: General partners.......................................... $ (7) Limited partners (200 units issued and outstanding)....... (621) (628) ------- ------ $5,804 ======
See accompanying notes. F-7 1462 COASTAL COMMONS LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 1,663 Other income.............................................. 124 ------- 1,787 Expenses: Operating................................................. $648 General and administrative................................ 48 Depreciation.............................................. 296 Interest.................................................. 534 Property taxes............................................ 118 1,644 ---- ------- Net income.................................................. $ 143 ======= Net income allocated to general partners (1%)............... $ 1 Net income allocated to limited partners (99%).............. 142 ------- $ 143 ======= Net income per limited partnership unit..................... $707.85 =======
See accompanying notes. F-8 1463 COASTAL COMMONS LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ----- Deficit at December 31, 1996................................ $(7) $(664) $(671) Net income.................................................. 1 142 143 Distributions to partners................................... (1) (99) (100) --- ----- ----- Deficit at December 31, 1997................................ $(7) $(621) $(628) === ===== =====
See accompanying notes. F-9 1464 COASTAL COMMONS LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net income................................................ $ 143 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 296 Amortization of loan costs and mortgage discount....... 29 Change in accounts: Receivables and deposits............................. (7) Other assets......................................... (9) Accounts payable..................................... (55) Tenant security deposit liabilities.................. 5 Other liabilities.................................... 21 ----- Net cash provided by operating activities................. 423 Cash flows from investing activities Property improvements and replacements.................... (64) Deposits to restricted escrows............................ (60) ----- Net cash used in investing activities..................... (124) Cash flows from financing activities Principal payments on mortgage notes payable.............. (59) Distributions to partners................................. (100) ----- Net cash used in financing activities..................... (159) ----- Net increase in cash and cash equivalents................. 140 Cash and cash equivalents at December 31, 1996............ 319 ----- Cash and cash equivalents at December 31, 1997............ $ 459 ===== Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 507 =====
See accompanying notes. F-10 1465 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Coastal Commons Limited Partnership (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated June 29, 1984 and extending to December 31, 2014, unless terminated sooner. Two hundred units of limited partnership interests, an individual general partner interest and two corporate general partner interests were issued. The Partnership owns and operates a 240-unit apartment complex, Hibben Ferry Apartments, in Mt. Pleasant, South Carolina. Principles of Consolidation The consolidated financial statements include all of the accounts of the Partnership's 79%-owned subsidiary Hibben Ferry Recreation Center, which owns recreational property used jointly by Hibben Ferry Apartments and a condominium complex owned and operated by an unaffiliated party. All significant intercompany accounts have been eliminated in consolidation. Minority interest represents the 21% non-affiliated ownership interest in Hibben Ferry Recreation Center. Investment Property Investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value of Financial Instruments The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long-term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. F-11 1466 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Loan Costs Loan costs are being amortized on a straight-line basis over the life of the loan. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Restricted Escrows A Replacement Reserve was established at the time of the refinancing of the mortgage note payable encumbering the apartment property to cover necessary costs and expenses incurred for capital improvements. The Partnership is required to make a monthly deposit of $4,000 to the reserve. At December 31, 1997, the account balance was approximately $125,000. There is also approximately $35,000 in replacement reserves for the Hibben Ferry Recreation Center. Partnership Allocations Net earnings or loss, distributions to partners, and taxable income or loss are allocated to the partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. NOTE B -- MORTGAGE NOTE PAYABLE The mortgage note of approximately $6,240,000 bears interest at 8.08% and is payable in monthly principal and interest installments of approximately $47,000 with a balloon payment of approximately $5,909,000 at maturity on July 1, 2002. The mortgage note payable is non-recourse and requires prepayment penalties if repaid prior to maturity and prohibits resale of the property subject to the existing indebtedness. The mortgage note payable is secured by pledge of the apartment property and by pledge of revenues from the apartment property. F-12 1467 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Scheduled principal payments of the mortgage note payable subsequent to December 31, are as follows (in thousands): 1998....................................................... $ 64 1999....................................................... 69 2000....................................................... 75 2001....................................................... 81 2002....................................................... 5,951 ------ $6,240 ======
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $87 General partner expenses.................................... 12 Asset management fees....................................... 4
Insignia entered into an Agreement and Plan of Merger, dated as of May 26, 1998, (as subsequently amended and restated, the "Merger Agreement") with Apartment Investment and Management Company ("AIMCO"), pursuant to which Insignia will merge its national residential property management operations and its controlling interest in Insignia Properties Trust with and into AIMCO, with AIMCO as the survivor. Consummation of the Merger, which is anticipated to occur in the third quarter of 1998, is subject to certain conditions, including the approval of the stockholders of Insignia (but not the approval of the stockholders of AIMCO). If the closing occurs, AIMCO will then control the General Partner of the Partnership. For the period of January 1, 1997, to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ----------- ------------- Hibben Ferry Apartments Mount Pleasant, South Carolina................. $6,240 $684 $8,027 $490 Hibben Ferry Recreation.......................... -- -- 121 10 ------ ---- ------ ---- Totals........................................... $6,240 $684 $8,148 $500 ====== ==== ====== ====
F-13 1468 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED DEPRECIABLE PERSONAL ACCUMULATED DATE LIFE -- DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED YEARS ----------- ---- ----------- ------ ------------ -------- ------------ Hibben Ferry Apartments.................... $684 $8,517 $9,201 $4,277 1984 5-30 Hibben Ferry Recreation.................... -- 131 131 61 1984 5-30 ---- ------ ------ ------ Totals..................................... $684 $8,648 $9,332 $4,338 ==== ====== ====== ======
The depreciable lives included above are for the buildings and components. The depreciable live for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year.............................. $9,268 Property improvements..................................... 64 ------ Balance at end of year.................................... $9,332 ====== Accumulated Depreciation Balance at beginning of year.............................. $4,042 Additions charged to expense.............................. 296 ------ Balance at end of year.................................... $4,338 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $9,241,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $7,044,000. NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net income and Federal taxable loss (in thousands, except per unit data): Net income as reported...................................... $ 143 Add (deduct): Depreciation differences.................................. (54) Rental Income............................................. 21 Other..................................................... 3 ------- Net income -- Federal income tax basis...................... $ 113 ------- Federal taxable income per limited partnership unit......... $559.35 =======
F-14 1469 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported................................. $ (628) Investment property......................................... (2,713) Syndication fees............................................ 1,605 Other....................................................... 47 ------- Net liabilities -- tax basis................................ $(1,689) =======
NOTE F -- YEAR 2000 (UNAUDITED) The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. NOTE G -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-15 1470 REPORT OF INDEPENDENT AUDITORS The Partners Coastal Commons Limited Partnership We have audited the accompanying statement of assets, liabilities and partners' deficit -- Federal income tax basis of Coastal Commons Limited Partnership (the "Partnership") as of December 31, 1997, and the related statement of revenues, expenses and changes in partners' deficit -- Federal income tax basis for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As more fully described in Note A, these financial statements have been prepared on the accounting basis used for Federal income tax purposes which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and partners' deficit of Coastal Commons Limited Partnership at December 31, 1997, and its revenues, expenses and changes in partners' deficit for the year then ended, on the basis of accounting described in Note A. /s/ ERNST & YOUNG LLP February 17, 1998 Greenville, South Carolina F-16 1471 COASTAL COMMONS LIMITED PARTNERSHIP STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 452 Receivables and deposits.................................... 57 Restricted escrows.......................................... 125 Deferred charges............................................ 1,605 Loan costs, net of $65 amortization......................... 125 Other assets................................................ 9 Apartment property, at cost (Note B): Land...................................................... $ 684 Buildings and related personal property................... 8,557 ------ 9,241 Less accumulated depreciation............................. 7,044 2,197 ------ Investment in Hibben Ferry Recreation, Inc. (Note A)........ 96 ------- $ 4,666 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 22 Security deposits and other tenant liabilities............ 41 Other liabilities......................................... 52 Mortgage note payable (Note B)............................ 6,240 ------- 6,355 Partners' (deficit)......................................... (1,689) ------- $ 4,666 =======
See accompanying notes. F-17 1472 COASTAL COMMONS LIMITED PARTNERSHIP STATEMENT OF REVENUES, EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Revenues: Rental income............................................. $ 1,665 Other income.............................................. 115 ------- 1,780 Expenses: Operating................................................. $624 General and administrative................................ 48 Depreciation.............................................. 345 Interest.................................................. 534 Property taxes............................................ 116 1,667 ---- ------- Excess of revenues over expenses............................ 113 Partners' (deficit) at December 31, 1996.................... (1,702) Distributions paid in 1997.................................. (100) ------- Partners' (deficit) at December 31, 1997.................... $(1,689) =======
See accompanying notes. F-18 1473 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Coastal Commons Limited Partnership (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated June 29, 1984 and extending to December 31, 2014, unless terminated sooner. The Partnership owns and operates a 240-unit apartment complex, Hibben Ferry Apartments, in Mt. Pleasant, South Carolina. In addition, the Partnership owns 240 of the 304 outstanding shares of Hibben Ferry Recreation, Inc., a non-profit corporation which owns recreational property used jointly by Hibben Ferry Apartments and a condominium complex owned and operated by an unaffiliated party. Basis of Accounting The financial statements are prepared on the accrual basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, and (3) the investment in Hibben Ferry Recreation, Inc. is carried on the cost method instead of consolidating the accounts of this majority-owned subsidiary, and (4) recognition and amortization of syndication costs. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Depreciation Under ACRS, depreciation is based on accelerated methods (1) for real property over 18 years for additions before May 9, 1985 and 19 years for additions after May 8, 1985 and before January 1, 1987 and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, MACRS is used (1) for real property over 27 1/2 years for additions after December 31, 1986 and (2) for personal property over 7 years for additions after December 31, 1986. Restricted Escrows Replacement Reserve -- At the time of the refinancing of Hibben Ferry Apartments in 1995, a replacement reserve was established to cover necessary costs and expenses incurred for capital improvements. The Partnership is required to make a monthly deposit of $4,000 to the reserve. At December 31, 1997, the account balance was approximately $125,000. Offering Costs Costs incurred in connection with the solicitation of equity capital of approximately $1,605,000 have been capitalized and represent a deferred charge deductible upon termination of the Partnership. Leases The Partnership generally leases apartment units for twelve-month terms or less. F-19 1474 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Cash and Cash Equivalents It is the Partnership's policy to classify all liquid short-term investments with a maturity of three months or less as cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and includes the deposits in "Receivables and deposits". Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Loan Costs Loan costs are being amortized on a straight-line basis over the life of the loan. Income Taxes No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising The Partnership expenses the costs of advertising as incurred. NOTE B -- MORTGAGE NOTE PAYABLE The mortgage note of approximately $6,240,000 bears interest at 8.08% and is payable in monthly principal and interest installments of approximately $47,000 with a balloon payment of approximately $5,909,000 at maturity on July 1, 2002. The mortgage note payable is non-recourse and requires prepayment penalties if repaid prior to maturity and prohibits resale of the property subject to the existing indebtedness. The mortgage note payable is secured by pledge of the apartment property and by pledge of revenues from the apartment property. Scheduled principal payments of the mortgage note payable subsequent to December 31, are as follows (in thousands): 1998....................................................... $ 64 1999....................................................... 69 2000....................................................... 75 2001....................................................... 81 2002....................................................... 5,951 ------ $6,240 ======
F-20 1475 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $87 General partner expenses.................................... 12 Asset management fees....................................... 4
NOTE D -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-21 1476 REPORT OF INDEPENDENT AUDITORS The Partners Coastal Commons Limited Partnership We have audited the accompanying statement of assets, liabilities and partners' deficit -- Federal income tax basis of Coastal Commons Limited Partnership (the "Partnership") as of December 31, 1996, and the related statement of revenues, expenses and changes in partners' deficit -- Federal income tax basis for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As more fully described in Note A, these financial statements have been prepared on the accounting basis used for Federal income tax purposes which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and partners' deficit of Coastal Commons Limited Partnership as of December 31, 1996, and its revenues, expenses and changes in partners' deficit for the year then ended, on the basis of accounting described in Note A. /s/ ERNST & YOUNG LLP February 26, 1997 Greenville, South Carolina F-22 1477 COASTAL COMMONS LIMITED PARTNERSHIP STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1996 (IN THOUSANDS) ASSETS Cash and cash equivalents: Unrestricted.............................................. $ 308 Restricted -- tenant security deposits.................... 38 Tenant accounts receivable.................................. 12 Restricted escrows.......................................... 71 Deferred charges............................................ 1,605 Loan costs, net of $38 amortization......................... 154 Apartment property, at cost (Note B): Land...................................................... $ 684 Buildings and related personal property................... 8,494 ------ 9,178 Less accumulated depreciation............................. 6,699 2,479 ------ Investment in Hibben Ferry Recreation, Inc. (Note A)........ 96 ------- $ 4,763 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 78 Security deposits and other tenant liabilities............ 36 Accrued interest payable.................................. 43 Other liabilities......................................... 9 Mortgage note payable (Note B)............................ 6,299 ------- 6,465 Partners' (deficit)......................................... (1,702) ------- $ 4,763 =======
See accompanying notes. F-23 1478 COASTAL COMMONS LIMITED PARTNERSHIP STATEMENT OF REVENUES, EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Revenues: Rental income............................................. $ 1,520 Other income.............................................. 148 ------- 1,668 Expenses: Operating................................................. $547 General and administrative................................ 28 Maintenance............................................... 306 Depreciation.............................................. 352 Interest.................................................. 539 Property taxes............................................ 115 1,887 ---- ------- Excess of expenses over revenues............................ (219) Partners' (deficit) at December 31, 1995.................... (1,483) ------- Partners' (deficit) at December 31, 1996.................... $(1,702) =======
See accompanying notes. F-24 1479 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Coastal Commons Limited Partnership (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated June 29, 1984 and extending to December 31, 2014, unless terminated sooner. The Partnership owns and operates a 240-unit apartment complex, Hibben Ferry Apartments, in Mt. Pleasant, South Carolina. In addition, the Partnership owns 240 of the 304 outstanding shares of Hibben Ferry Recreation, Inc., a non-profit corporation which owns recreational property used jointly by Hibben Ferry Apartments and a condominium complex owned and operated by an unaffiliated party. Basis of Accounting The financial statements are prepared on the accrual basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, and (3) the investment in Hibben Ferry Recreation, Inc. is carried on the cost method instead of consolidating the accounts of this majority-owned subsidiary, and (4) recognition and amortization of syndication costs. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Depreciation Under ACRS, depreciation is based on accelerated methods (1) for real property over 18 years for additions before May 9, 1985 and 19 years for additions after May 8, 1985 and before January 1, 1987 and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, MACRS is used (1) for real property over 27 1/2 years for additions after December 31, 1986 and (2) for personal property over 7 years for additions after December 31, 1986. Restricted Escrows Replacement Reserve -- At the time of the refinancing of Hibben Ferry Apartments in 1995, a replacement reserve was established to cover necessary costs and expenses incurred for capital improvements. The Partnership is required to make a monthly deposit of $4,000 to the reserve. At December 31, 1996, the account balance was approximately $71,000. Offering Costs Costs incurred in connection with the solicitation of equity capital of approximately $1,605,000 have been capitalized and represent a deferred charge deductible upon termination of the Partnership. Leases The Partnership generally leases apartment units for twelve-month terms or less. F-25 1480 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Cash and Cash Equivalents -- Unrestricted Cash It is the Partnership's policy to classify all liquid short-term investments with a maturity of three months or less as cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and considers the deposits to be restricted cash. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Loan Costs Loan costs are being amortized on a straight-line basis over the life of the loan. Income Taxes No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising The Partnership expenses the costs of advertising as incurred. NOTE B -- MORTGAGE NOTE PAYABLE The mortgage note of approximately $6,299,000 bears interest at 8.08% and is payable in monthly principal and interest installments of approximately $47,000 with a balloon payment of approximately $5,909,000 at maturity on July 1, 2002. The mortgage note payable is non-recourse and requires prepayment penalties if repaid prior to maturity and prohibits resale of the property subject to the existing indebtedness. The mortgage note payable is secured by pledge of the apartment property and by pledge of revenues from the apartment property. Scheduled principal payments of the mortgage note payable subsequent to December 31, are as follows (in thousands): 1997....................................................... $ 59 1998....................................................... 64 1999....................................................... 69 2000....................................................... 75 2001....................................................... 81 Thereafter................................................. 5,951 ------ $6,299 ======
F-26 1481 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1996 (in thousands): Property management fees.................................... $82 General partner expenses.................................... 16
NOTE D -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-27 1482 REPORT OF INDEPENDENT AUDITORS The Partners Coastal Commons Limited Partnership We have audited the accompanying statement of assets, liabilities and partners' deficit -- Federal income tax basis of Coastal Commons Limited Partnership (the "Partnership") as of December 31, 1995, and the related statement of revenues, expenses and changes in partners' deficit -- Federal income tax basis for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and partners' deficit of Coastal Commons Limited Partnership as of December 31, 1995, and its revenues, expenses and changes in partners' deficit for the year then ended, on the basis of accounting described in Note 1. /s/ ERNST & YOUNG LLP March 5, 1996 Greenville, South Carolina F-28 1483 COASTAL COMMONS LIMITED PARTNERSHIP STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1995 ASSETS Cash, including tenant security deposits of $31,140......... $ 220,858 Tenant accounts receivable.................................. 5,557 Escrows for taxes and insurance............................. 9,097 Restricted escrows.......................................... 125,575 Deferred charges (Note 1)................................... 1,605,036 Loan costs, net of $11,268 amortization..................... 178,037 Apartment property, at cost (Note 2): Land...................................................... $ 684,299 Buildings and related personal property................... 8,431,432 ---------- 9,115,731 Less accumulated depreciation............................. 6,346,723 2,769,008 ---------- Investment in Hibben Ferry Recreation, Inc. (Note 1)........ 96,000 ----------- $ 5,009,168 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 56,425 Security deposits and other tenant liabilities............ 30,027 Accrued interest payable.................................. 42,781 Other liabilities......................................... 8,783 Mortgage note payable (Note 2)............................ 6,353,672 ----------- 6,491,688 Partners' (deficit)......................................... (1,482,520) ----------- $ 5,009,168 ===========
See accompanying notes. F-29 1484 COASTAL COMMONS LIMITED PARTNERSHIP STATEMENT OF REVENUES, EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1995 Revenues: Apartment rentals......................................... $ 1,438,405 Other income.............................................. 101,549 ----------- 1,539,954 Expenses: Operating................................................. $419,918 General and administrative................................ 74,334 Maintenance............................................... 141,532 Property management fee (Note 3).......................... 77,155 General partner expenses (Note 3)......................... 18,245 Depreciation.............................................. 404,822 Interest.................................................. 577,734 Property taxes............................................ 115,295 1,829,035 -------- ----------- Excess of expenses over revenues............................ (289,081) Partners' (deficit) at December 31, 1994.................... (1,193,439) ----------- Partners' (deficit) at December 31, 1995.................... $(1,482,520) ===========
See accompanying notes. F-30 1485 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1995 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Coastal Commons Limited Partnership (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated June 29, 1984 and extending to December 31, 2014, unless terminated sooner. The Partnership owns and operates a 240-unit apartment complex, Hibben Ferry Apartments, in Mt. Pleasant, South Carolina. In addition, the Partnership owns 240 of the 304 outstanding shares of Hibben Ferry Recreation, Inc., a non-profit corporation which owns recreational property used jointly by Hibben Ferry Apartments and a condominium complex owned and operated by an unaffiliated party. Basis of Accounting The financial statements are prepared on the accrual basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, and (3) the investment in Hibben Ferry Recreation, Inc. is carried on the cost method instead of consolidating the accounts of this majority-owned subsidiary, and (4) recognition and amortization of syndication costs. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Depreciation Under ACRS, depreciation is based on accelerated methods (1) for real property over 18 years for additions before May 9, 1985 and 19 years for additions after May 8, 1985 and before January 1, 1987 and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, MACRS is used (1) for real property over 27 1/2 years for additions after December 31, 1986 and (2) for personal property over 7 years for additions after December 31, 1986. Restricted Escrows Repair and Remediation Reserve -- At the time of the refinancing of Hibben Ferry Apartments in 1995, $104,875 was designated for a repair and remediation reserve for general maintenance, repairs, or corrective work at the property to be completed in 1995. At December 31, 1995, the entire balance remained in the escrow. All work has been completed and the funds will be released upon inspection of the work by the Mortgagee in 1996. Replacement Reserve -- In addition to the Repair and Remediation Reserve established in 1995, a replacement reserve was established to cover necessary costs and expenses incurred for capital improvements. The Partnership is required to make a monthly deposit of $4,140 to the reserve. At December 31, 1995, the account balance was $20,700. F-31 1486 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Offering Costs Costs incurred in connection with the solicitation of equity capital of $1,605,036 have been capitalized and represent a deferred charge deductible upon termination of the Partnership. Leases The Partnership generally leases apartment units for twelve-month terms or less. Cash The Partnership considers only unrestricted cash to be cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Loan Costs Loan costs are being amortized on a straight-line basis over the life of the loan. Income Taxes No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising The Partnership expenses the costs of advertising as incurred. 2. MORTGAGE NOTE PAYABLE The mortgage note of $6,353,672 bears interest at 8.08% and is payable in monthly principal and interest installments of $47,134 with a balloon payment of $5,901,749 at maturity on July 1, 2002. The mortgage note payable is non-recourse and requires prepayment penalties if repaid prior to maturity and prohibits resale of the property subject to the existing indebtedness. The mortgage note payable is secured by pledge of the apartment property and by pledge of revenues from the apartment property. F-32 1487 COASTAL COMMONS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Scheduled principal payments of the mortgage note payable subsequent to December 31, are as follows: 1996..................................................... $ 54,204 1997..................................................... 58,749 1998..................................................... 63,676 1999..................................................... 69,016 2000..................................................... 74,803 Thereafter............................................... 6,033,224 ---------- $6,353,672 ==========
3. TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1995: Property management fees.................................... $77,155 General partner expenses.................................... 18,245
NOTE 4 -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-33 1488 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 1489 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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. A-2 1490 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 September , 1998 A-3 1491 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF DFW APARTMENT 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 WE WILL ONLY ACCEPT A MAXIMUM OF % OF ANY 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 THE 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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 apartment properties to holding an interest in our large portfolio of properties. - 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 1492 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-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 DFW Apartment 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 1493
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-77
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 1494 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 DFW Apartment 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 $1,394 million and stockholders' equity of $1,314 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 $3,972, total debt of $1,626 and stockholders' equity of $1,844. 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 the managing general partner (the "general partner") of your partnership 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 1495 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 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). 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 $2,600 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 distributions of $ 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 small number of apartment 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 S-3 1497 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 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1498 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 100% of 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? 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: 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 1499 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 1500 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. 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. 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 5 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. 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 S-7 1501 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. 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 Code. The particular tax consequences to you of the exchange 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 small number of apartment 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. S-8 1502 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 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 S-9 1503 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 1504 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, 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. 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 S-11 1505 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 13.35% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 1506 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. 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." S-13 1507 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 S-14 1508 - 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 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 CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. S-15 1509 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 own 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 S-16 1510 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, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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 Consideration 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-1 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, the general partner of your partnership is entitled to fees for its services as general partner while the general partner of the AIMCO Operating Partnership is not entitled to such fees. 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 1511 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual fee of $40,000 beginning in 1990 and increasing annually at a rate of 5% beginning in 1991 and may receive reimbursement for expenses generated in its capacity as general partner from your partnership. The property manager received management fees of $195,660 in 1996, $209,666 in 1997 and $107,798 for the first six months of 1998. We have no current intention of changing the fee structure for your property manager. The general partner of your partnership receives an annual fee of $40,000 beginning in 1990 and increasing annually at a rate of 5% beginning in 1991 from your partnership. 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 Your Partnership and its Property. DFW Apartment Investors Limited Partnership is a Delaware limited partnership which was formed on May 2, 1990 for the purpose of owning and operating a small number of apartment properties located in Irving, Texas, Arlington, Texas and Euless, Texas, known as "Heather Ridge Apartments," "Oak Forest Apartments" and "Hillcrest Apartments," respectively. In 1990, it completed a private placement of units that raised net proceeds of approximately $20,600,000. Heather Ridge Apartments and Oak Forest Apartments each consists of 204 apartment units and Hillcrest Apartments consists of 298 apartment units. Your partnership has no employees. Property Management. Since November 1997, your partnership's property has been managed by an entity which is now our affiliate. 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 S-18 1512 of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2040, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had current mortgage notes outstanding on "Heather Ridge Apartments" of $3,744,013, on "Hillcrest Apartments" of $3,775,476 and on "Oak Forest Apartments" of $2,898,497. All three mortgage notes are payable to AMI Capital, bear interest at a rate of 7.53% and are due May 2003. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has a loan outstanding to your partnership of $ , bearing interest at a rate of %, due . Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1513 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, 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 1514
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 1515 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 1516
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 1517 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 1518 SUMMARY FINANCIAL INFORMATION OF DFW APARTMENT INVESTORS LIMITED PARTNERSHIP The summary financial information of DFW Apartment Investors Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for DFW Apartment Investors 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 of Your Partnership" included herein. See "Index to Financial Statements." DFW APARTMENT INVESTORS LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, --------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------------ ------------ ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues....... 2,163,821 0 4,261,022 4,010,607 3,785,716 3,633,991 3,461,667 Net Income/(Loss).... 60,864 0 123,692 271,754 846,434 849,576 857,699 Balance Sheet Data: Real Estate, Net of Accumulated Depreciation............. 22,362,808 0 13,648,817 14,125,696 14,436,696 14,583,938 14,882,518 Total Assets......... 25,489,302 0 16,713,688 17,199,211 17,399,845 17,458,947 17,948,841 Mortgage Notes Payable, including Accrued Interest................. 10,494,293 0 10,579,050 10,671,464 0 0 0 Partners' Capital/(Deficit)........ 5,573,534 0 5,512,670 5,939,092 16,827,388 16,932,047 17,373,449
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $0
S-25 1519 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. 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 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 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, 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 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. S-26 1520 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 Code. 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 therefore 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 apartment 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 S-27 1521 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 the distributions with respect to your units for the year ended December 31, 1997 were $2,600 per unit. This is equivalent to distributions of $ per year on the number of Tax-Deferral % Preferred OP Units, or distributions of $ year on the number of Tax-Deferral Common OP Units, that you would receive in an 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 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. 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. S-28 1522 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently own a 13.35% limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 1523 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. S-30 1524 - 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 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 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. - Preferred Quarterly Distributions. We pay quarterly distributions on the Common OP Units. For the quarter ended June 30, 1998, we paid distributions of Common OP Units. 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 1525 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 and the expiration of the offer. See "Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. S-32 1526 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 1527 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. 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. S-34 1528 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." 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. 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. S-35 1529 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, (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 9:00 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 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, Denver, Colorado time. S-36 1530 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 1531 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. 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 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 S-38 1532 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 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 S-39 1533 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 1534 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. 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. 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-41 1535 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-42 1536 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 payment. 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 OP Units and any such S-43 1537 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-44 1538 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-45 1539 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-46 1540 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-47 1541 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-48 1542 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-49 1543 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 1544 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-51 1545 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 1546 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 1547 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 1548 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 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, a third party expert, 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 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 the distributions with respect to your units for the year ended December 31, 1997 were $2,600. 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-55 1549 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-56 1550 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 Consideration.................................... $ 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 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. S-57 1551 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 1552 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 September 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 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 property was 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, S-59 1553 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 1554 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Heather Ridge Apartments, Oak Forest Partnership owns interests (either directly or through Apartments and Hillcrest Apartments. 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 2040. 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, finance and conduct any business that may be lawfully conducted by otherwise deal with your partnership's property. a limited partnership organized pursuant to the Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as agreement of limited partnership, your partnership may amended from time to time, or any successor to such perform all act necessary, advisable or convenient to statute) (the "Delaware Limited Partnership Act"), the business of your partnership including borrowing provided that such business is to be conducted in a 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-61 1555 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 206 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 partner 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 and, with the consent of the limited Subject to Delaware law, any additional partnership partners, issue other equity interests. Such interests interests may be issued in one or more classes, or one may be sold on such terms and conditions and the or more series of any of such classes, with such additional limited partners shall have such rights and designations, preferences and relative, partici- obligations as the general partner shall determine. In pating, optional or other special rights, powers and the event the general partner sells additional limited duties as shall be determined by the general partner, partner interests, prior to the sale of such interests, in its sole and absolute discretion without the the general partner will offer such interests to the approval of any OP Unitholder, and set forth in a original limited partners. 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 contract with the funds or other assets to its subsidiaries or other general partner or its affiliates for various goods and persons in which it has an equity investment, and such services, including without limitation, insurance, persons may borrow funds from the AIMCO Operating insurance brokerage, mortgage brokerage in connection Partnership, on terms and conditions established in the with financings and refinancings of your partnership's sole and absolute discretion of the general partner. To property, management, rehabilitation, construction the extent consistent with the business purpose of the supervision, leasing and property brokerage. The AIMCO Operating Partnership and the permitted compensation paid under such contracts must be at the activities of the general partner, the AIMCO Operating then prevailing market rates in the vicinity of your Partnership may transfer assets to joint ventures, partnership's property. Your partnership may not make limited liability companies, partnerships, loans to the general partner or its affiliates but the corporations, business trusts or other business general partner and its affiliates may lend money to entities in which it is or thereby becomes a your partnership if such loans are evidenced by participant upon such terms and subject to such promissory notes, bear interest at commercially conditions consistent with the AIMCO Operating Part- reasonable rates not in excess of 3% above the "base nership Agreement and applicable law as the general rate" of the First National Bank of Boston and are partner, in its sole and absolute discretion, believes subordinate to the obligations of your partnership to to be advisable. Except as expressly permitted by the pay unrelated creditors. 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, 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. other things, its ability to incur indebtedness. See "Risk Factors -- Risks of Significant Indebtedness" in the accompanying Prospectus.
S-62 1556 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 kept with a statement of the purpose of such demand and at by your partnership which lists the names of all such OP Unitholder's own expense, to obtain a current limited partners and the number of units owned by each list of the name and last known business, residence or limited partner at any reasonable time during normal mailing address of the general partner and each other business hours. OP Unitholder.
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 your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business, to bind your partnership by its Inc., which is the general partner. No OP Unitholder sole signature and take any action it deems necessary has any right to participate in or exercise control or 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's 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, 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 negligence or indemnification of AIMCO, or any director or officer of misconduct on the part of such party. In addition, the AIMCO (in its capacity as the previous general partner general partner and its affiliates are entitled to of the AIMCO Operating Partnership), the general indemnification by your partnership against any loss, partner, any officer or director of general partner or damage, liability, cost or expense sustained by it or the AIMCO Operating Partnership and such other persons them in connection with your partnership, provided that as the general partner may designate from and against such loss, damage, liability, cost or expense was not all losses, claims, damages, liabilities, joint or the result of negligence or misconduct by such party. several, expenses (including legal fees), fines, However, neither the general partner nor any affiliate settlements and other amounts incurred in connection will be indemnified for any loss, damage or cost with any actions relating to the operations of the resulting from the violation of any Federal or state AIMCO Operating Partnership, as set forth in the AIMCO securities laws in connection with the sale of units Operating Partnership Agreement. The Delaware Limited and will be liable for such violations unless (i) there Partnership Act provides that subject to the standards has been a successful adjudication on the merits of and restrictions, if any, set forth in its partnership each count involving the securities law violations, agreement, a limited partnership may, and shall have (ii) such claims have been dismissed with prejudice on the power to, indemnify and hold harmless any partner the merits by a court of competent jurisdiction or other
S-63 1557 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP or (iii) a court of competent jurisdiction approves a person from and against any and all claims and demands settlement of such claims. In such claim for whatsoever. It is the position of the Securities and indemnification for Federal or state securities law Exchange Commission that indemnification of directors violation, the party seeking indemnification must place and officers for liabilities arising under the before the court the position of the SEC and any other Securities Act is against public policy and is applicable regulatory agency with respect of the issue unenforceable pursuant to Section 14 of the Securities of indemnification for securities law violations. Any Act of 1933. such indemnity provided shall be paid, from and only to the extent of, partnership assets.
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. A general partner may withdraw AIMCO Operating Partnership by the OP Unitholders with voluntarily from your partnership only if there is or without cause. Under the AIMCO Operating Partnership another general partner or a successor is elected. The Agreement, the general partner may, in its sole general partner may admit an additional or substitute discretion, prevent a transferee of an OP Unit from general partner with the consent of limited partners becoming a substituted limited partner pursuant to the owning more than 50% of the units. A limited partner AIMCO Operating Partnership Agreement. The general may not transfer his interests without the consent of partner may exercise this right of approval to deter, the general partner which may be withheld at the sole delay or hamper attempts by persons to acquire a discretion of the general partner. 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 to cure any ambiguity in the AIMCO Operating Partnership Agreement, whereby or correct or supplement any provision of your the general partner may, without the consent of the OP partnership's agreement of limited partnership which is Unitholders, amend the AIMCO Operating Partnership inconsistent with any other provision and to comply Agreement, amendments to the AIMCO Operating with applicable tax and securities laws. No amend- Partnership Agreement require the consent of the ments may be made which affect the obligation of the holders of a majority of the outstanding Common OP limited partners to make their required capital Units, excluding AIMCO and certain other limited contribution or affect the timing or amount of the fees exclusions (a "Majority in Interest"). Amendments to paid by your partnership and no amendments may be made the AIMCO Operating Partnership Agreement may be which adversely the rights of or the share of profits, proposed by the general partner or by holders of a losses and distributions allocable or distributable to Majority in Interest. Following such proposal, the a partner without the consent of the affected partner. general partner will submit any proposed amendment to Other amendments to your partnership's agreement of the OP Unitholders. The general partner will seek the limited partnership must be approved by the limited written consent of the OP Unitholders on the proposed partners owning more than 50% of the units and the amendment or will call a meeting to vote thereon. See general partner. Certain specified provisions of your "Description of OP Units -- Amendment of the AIMCO partnership's agreement of limited partnership require Operating Partnership Agreement" in the accompanying the consent of all limited partners. Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives an annual fee of $40,000 beginning in 1990 capacity as general partner of the AIMCO Operating which increases annually at a rate of 5% beginning in Partnership. In addition, the AIMCO Operating Part- 1991. Moreover, the general partner or certain nership is responsible for all expenses incurred affiliates may be entitled to compensation for relating to the AIMCO Operating Partnership's ownership additional services rendered. 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-64 1558 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 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- 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 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 and its affiliates may engage in or possess an expressly authorizes the general partner to enter into, interest in other business ventures of every nature and on behalf of the AIMCO Operating Partnership, a right description, including, without limitation, real estate of first opportunity arrangement and other conflict business ventures, whether or not such other avoidance agreements with various affiliates of the enterprises are in competition with any activities of AIMCO Operating Partnership and the general partner, on your partnership. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 1559 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 or the merger or law or by the AIMCO Operating its interest in the AIMCO Operating other reorganization of Partnership Agree- Part-
S-66 1560 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS your partnership; and authorize the ment, the affirmative vote or nership or the admission of a issuance of other equity interests consent of holders of at least 50% successor general partner. in your partnership. The consent of of the outstanding Preferred OP a limited partner will be deemed to Units will be necessary for Under the AIMCO Operating Partner- be granted if such limited partner effecting any amendment of any of ship Agreement, the general partner does not, in writing, refuse to the provisions of the Partnership has the power to effect the consent within thirty days after he Unit Designation of the Preferred acquisition, sale, transfer, receives notice requesting the OP Units that materially and exchange or other disposition of consent. adversely affects the rights or any assets of the AIMCO Operating preferences of the holders of the Partnership (including, but not A general partner may cause the Preferred OP Units. The creation or limited to, the exercise or grant dissolution of the your partnership issuance of any class or series of of any conversion, option, by retiring. Your partnership may partnership units, including, privilege or subscription right or be continued by a remaining general without limitation, any partner- any other right available in partner or, if none, the limited ship units that may have rights connection with any assets at any partners may agree to continue your senior or superior to the Preferred time held by the AIMCO Operating partnership by electing a successor OP Units, shall not be deemed to Partnership) or the merger, general partner by unanimous materially adversely affect the consolidation, reorganization or written consent within 120 days rights or preferences of the other combination of the AIMCO after the retirement of the general holders of Preferred OP Units. With Operating Partnership with or into partner. 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.
S-67 1561 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 Cash Flow 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 as de- and from time to time on or after in its sole and absolute discretion termined by the general partner, the fifth anniversary of the issue determine, of Available Cash (as and in any event will be made date of the Preferred OP Units, the defined in the AIMCO Operating within 60 days after the close of AIMCO Operating Partnership may Partnership Agreement) generated by each fiscal year. 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. Your dividend rate on the most recently with respect to such quarter, in partnership has made distributions issued AIMCO non-convertible accordance with their respective in the past and is projected to preferred stock which ranks on a interests in the AIMCO Operating make distributions in 1998. 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 who is not a Preferred OP Units and the OP Units. The AIMCO Operating Part- minor or incom- Preferred OP
S-68 1562 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS petent, except in limited Units are not listed on any nership Agreement restricts the situations, and such person may be securities exchange. The Preferred transferability of the OP Units. substituted as a limited partner OP Units are subject to Until the expiration of one year provided that: (1) the transfer restrictions on transfer as set from the date on which an OP complies with the then-applicable forth in the AIMCO Operating Unitholder acquired OP Units, rules and regulations of any Partnership Agreement. subject to certain exceptions, such governmental authority with OP Unitholder may not transfer all jurisdiction over the dispo- Pursuant to the AIMCO Operating or any portion of its OP Units to sition, (2) except in specified Partnership Agreement, until the any transferee without the consent circumstances, the interest expiration of one year from the of the general partner, which transferred is not less than 1/2 date on which a holder of Preferred consent may be withheld in its sole unit, (3) the transfer, when added OP Units acquired Preferred OP and absolute discretion. After the to all other assignments taking Units, subject to certain expiration of one year, such OP place in the preceding 12 month 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 the partnership for tax purposes, all or any portion of its Pre- OP Units to any person, subject to (4) the approval of the general ferred OP Units to any transferee the satisfaction of certain partner which may be withheld in without the consent of the general conditions specified in the AIMCO the sole and absolute discretion of partner, which consent may be Operating Partnership Agreement, the general partner has been withheld in its sole and absolute including the general partner's granted and (5) the assignor and discretion. After the expiration of right of first refusal. See assignee have complied with such one year, such holders of Preferred "Description of OP Units -- other conditions as are set forth OP Units has the right to transfer Transfers and Withdrawals" in the in your partnership's agreement of all or any portion of its Preferred accompanying Prospectus. limited partnership. OP Units to any person, subject to There are no redemption rights the satisfaction of certain After the first anniversary of associated with your units. 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 general partner may, in its of Class I Cumulative Preferred sole and absolute discretion but Stock of AIMCO that pay an subject to the restrictions on the aggregate amount of dividends yield ownership of Class A Common Stock equivalent to the distributions on imposed under the AIMCO's charter the Preferred OP Units tendered for and the transfer restrictions and redemption and are part of a class other limitations thereof, elect to or series of preferred stock that cause AIMCO to acquire some or all is then listed on the New York of the tendered Common OP Units in Stock Exchange or another national exchange for Class A Common Stock, securities exchange, or (iii) a based on an exchange ratio of one number of shares of Class A Common share of Class A Common Stock for Stock of AIMCO that is equal in each Common OP Unit, subject to Value to the Liquidation Preference adjustment as provided in the AIMCO of the Preferred OP Units tendered Operating 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-69 1563 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual fee of $40,000 beginning in 1990 and increasing annually at a rate of 5% beginning in 1991 and you may receive reimbursement for expenses generated in that capacity from your partnership. The property manager received management fees of $195,660 in 1996, $209,666 in 1997 and $107,798 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's 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'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 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-70 1564 YOUR PARTNERSHIP GENERAL La Colina Partners, Ltd. is a Delaware limited partnership which raised net proceeds of approximately $20,600,000 in 1990 through a private offering. The promoter for the private offering of your partnership was Winthrop Securities Co., Inc. Insignia acquired your partnership in November 1997. AIMCO acquired Insignia in October, 1998. There are currently a total of 185 limited partners of your partnership and a total of 206 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the small number of apartment properties described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 2, 1990 for the purpose of owning and operating a small number of apartment properties located in Irving, Texas, Arlington, Texas and Euless, Texas, known as "Heather Ridge Apartments," "Oak Forest Apartments" and "Hillcrest Apartments," respectively. There are 204 apartment units in "Heather Ridge Apartments" consisting of 70 one-bedroom apartments and 134 two-bedroom apartments. The total rentable square footage is 169,718 square feet and the average annual rent per apartment unit is $6,616. "Hillcrest Apartments" has 298 apartment units. There are 48 studios, 160 one- bedroom apartments and 90 two-bedroom apartments. The total rentable square footage is 204,644 square feet. The average annual rent per apartment unit is $5,160. In "Oak Forest Apartments," there are 204 apartment units. The total rentable square footage is 155,104 square feet and the average annual rent per apartment unit is $5,746. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1997, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $195,660, $209,666 and $107,798, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2040 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. S-71 1565 An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had current mortgage notes outstanding on "Heather Ridge Apartments" of $3,744,013, on "Hillcrest Apartments" of $3,775,476 and on "Oak Forest Apartments" of $2,898,497. All three mortgage notes are payable to AMI Capital, bear interest at a rate of 7.53% and are due May 2003. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has a loan outstanding to your partnership of $ , bearing interest at a rate of %, due . COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 1566 Below is selected financial information for DFW Apartment Investors Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP --------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ----------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- --------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents....... $ 1,062,097 $ Not $ 722,786 $ 660,161 $ 1,748,923 $ 1,632,642 $ 1,765,862 Land & Building................. 17,853,009 Available 17,789,741 17,528,829 17,168,394 16,711,223 16,444,133 Accumulated Depreciation........ (4,509,799) 0 (4,140,924) (3,403,133) (2,731,698) (2,127,285) (1,561,615) Other Assets.................... 2,064,397 0 2,342,085 2,413,354 1,214,226 1,242,367 1,300,461 ----------- --------- ----------- ----------- ----------- ----------- ----------- Total Assets........... $25,489,302 $ 0 $16,713,688 $17,199,211 $17,399,845 $17,458,947 $17,948,841 =========== ========= =========== =========== =========== =========== =========== Mortgage & Accrued Interest..... 10,494,293 10,579,050 10,671,464 0 0 0 Other Liabilities............... 401,876 621,968 588,655 572,457 526,900 575,392 ----------- --------- ----------- ----------- ----------- ----------- ----------- Total Liabilities...... $10,896,169 $ 0 $11,201,018 $11,260,119 $ 572,457 $ 526,900 $ 575,392 ----------- --------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)...... $ 5,573,534 $ 0 $ 5,512,670 $ 5,939,092 $16,827,388 $16,932,047 $17,373,449 =========== ========= =========== =========== =========== =========== ===========
DFW APARTMENT INVESTORS LIMITED PARTNERSHIP ---------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ----------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue............................ $2,088,959 $ $4,153,239 $3,840,047 $3,580,689 $3,473,045 $3,266,463 Other Income.............................. 74,862 107,783 170,560 205,027 160,946 195,204 ---------- -- ---------- ---------- ---------- ---------- ---------- Total Revenue.................... $2,163,821 $0 $4,261,022 $4,010,607 $3,785,716 $3,633,991 $3,461,667 ---------- -- ---------- ---------- ---------- ---------- ---------- Operating Expenses........................ 884,161 0 1,884,244 1,801,266 1,659,844 1,648,384 1,506,569 General & Administrative.................. 129,773 207,442 239,123 232,732 214,488 245,289 Depreciation.............................. 368,896 737,791 671,435 604,413 565,670 503,494 Interest Expense.......................... 428,175 797,112 569,437 0 0 0 Property Taxes............................ 291,952 510,741 457,592 442,293 355,873 348,616 ---------- -- ---------- ---------- ---------- ---------- ---------- Total Expenses................... $2,102,957 $0 $4,137,330 $3,738,853 $2,939,282 $2,784,415 $2,603,968 ---------- -- ---------- ---------- ---------- ---------- ---------- Net Income................................ $ 60,864 $0 $ 123,692 $ 271,754 $ 846,434 $ 849,576 $ 857,699 ========== == ========== ========== ========== ========== ==========
S-73 1567 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Due to this partnership being a recent acquisition, very little discussion is available for variances. Results of Operations Six Months Ended June 30, 1998 Due to this partnership being a recent acquisition no data is available for the six months ended June 30, 1997. Net Income Your partnership recognized net income of $60,864 for the six months ended June 30, 1998. Revenues Rental and other property revenues from the partnership's property totaled $2,163,821 for the six months ended June 30, 1998. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $884,161 for the six months ended June 30, 1998. Management expenses totaled $107,798 for the six months ended June 30, 1998. General and Administrative Expenses General and administrative expenses totaled $129,773 for the six months ended June 30, 1998. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $428,175 for the six months ended June 30, 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $123,692 for the year ended December 31, 1997, compared to $271,754 for the year ended December 31, 1996. The decrease in net income of $148,062, or 54.48% was primarily the result of increased expenses over increased revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $4,261,022 for the year ended December 31, 1997, compared to $4,010,607 for the year ended December 31, 1996, an increase of $250,415, or 6.24%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,884,244 for the year ended December 31, 1997, compared to $1,801,266 for the year ended December 31, S-74 1568 1996, an increase of $82,978 or 4.61%. Management expenses totaled $209,666 for the year ended December 31, 1997, compared to $195,660 for the year ended December 31, 1996, an increase of $14,006, or 7.16%. The increase resulted from increased revenues, as management fees are calculated based on a percentage of revenues. General and Administrative Expenses General and administrative expenses totaled $207,442 for the year ended December 31, 1997 compared to $239,123 for the year ended December 31, 1996, a decrease of $31,681 or 13.25%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $797,112 for the year ended December 31, 1997, compared to $569,437 for the year ended December 31, 1996, an increase of $227,675, or 39.98%. The increase is the result of only a partial year of mortgage payments being made in 1996 as the mortgage was not obtained until April of that year. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $271,754 for the year ended December 31, 1996, compared to $846,434 for the year ended December 31, 1995. The decrease in net income of $574,680, or 67.89% was primarily the result of increased expenses over the increase in revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $4,010,607 for the year ended December 31, 1996, compared to $3,785,716 for the year ended December 31, 1995, an increase of $224,891, or 5.94%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,801,266 for the year ended December 31, 1996, compared to $1,659,844 for the year ended December 31, 1995, an increase of $141,422 or 8.52%. Management expenses totaled $195,660 for the year ended December 31, 1996, compared to $186,505 for the year ended December 31, 1995, an increase of $9,155, or 4.91%. General and Administrative Expenses General and administrative expenses totaled $239,123 for the year ended December 31, 1996 compared to $232,732 for the year ended December 31, 1995, an increase of $6,391 or 2.75%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $569,437 for the year ended December 31, 1996, compared to $0 for the year ended December 31, 1995, an increase of $569,437, or 100%. The increase is due to the partnership obtaining three mortgage loans for a total of approximately $10.7 million in April of 1996. Liquidity and Capital Resources As of June 30, 1998, your partnership had $1,062,097 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on S-75 1569 outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 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 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 in connection with your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct by such party. However, neither the general partner nor any affiliate will be indemnified for any loss, damage or cost resulting from the violation of any Federal or state securities laws in connection with the sale of units and will be liable for such violations unless (i) there has been a successful adjudication on the merits of each count involving the securities law violations, (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or (iii) or court of competent jurisdiction approves a settlement of such claims. In such claim for indemnification for Federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect of the issue of indemnification for securities law violations. Any such indemnity provided shall be paid, from and only to the extent of, partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $103,000.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 6,200 1995........................................................ 4,575 1996........................................................ 53,675 1997........................................................ 2,600 1998 (through June 30)...................................... 0
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in S-76 1570 order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP AIMCO currently owns a 13.35% limited partnership interest in your partnership. Except as described above, Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $48,620 1995........................................................ 51,051 1996........................................................ 54,114 1997........................................................ 28,985 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... 186,505 1996........................................... 195,660 1997........................................... 209,666 1998 (through June 30)......................... 107,798
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 company paid to the property manager or AIMCO and its affiliates. S-77 1571 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 DFW Apartment Investors Limited Partnership at December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by Reznick Fedder & Silverman, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-78 1572 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statement of Income for the six months ended June 30, 1998 (unaudited)...................................... F-3 Condensed Statement of Cash Flows for the six months ended June 30, 1998 (unaudited)................................. F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-8 Balance Sheets as of December 31, 1997 and 1996............. F-9 Statements of Income for the years ended December 31, 1997 and 1996.................................................. F-10 Statements of Partners' Capital for the years ended December 31, 1997 and 1996......................................... F-11 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-12 Notes to Financial Statements............................... F-13 Independent Auditors' Report................................ F-18 Balance Sheets as of December 31, 1996 and 1995............. F-19 Statements of Income for the years ended December 31, 1996 and 1995.................................................. F-20 Statements of Partners' Capital for the years ended December 31, 1996 and 1995......................................... F-21 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-22 Notes to Financial Statements............................... F-23
F-1 1573 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP CONDENSED BALANCE SHEET (UNAUDITED) INCOME TAX BASIS JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 1,062,097 Receivables and Deposits.................................... 29,858 Restricted Escrows.......................................... 494,578 Other Assets................................................ 1,539,961 Investment Property: Land...................................................... 2,797,475 Building and related personal property.................... 15,055,534 ----------- 17,853,009 Less: Accumulated depreciation............................ (4,509,800) 13,343,209 ----------- ----------- Total Assets...................................... $16,469,703 =========== LIABILITIES AND PARTNERS' CAPITAL Other Accrued Liabilities................................... $ 401,876 Notes Payable............................................... 10,494,293 Partners' Capital........................................... 5,573,534 ----------- Total Liabilities and Partners' Capital..................... $16,469,703 ===========
F-2 1574 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP CONDENSED STATEMENT OF INCOME (UNAUDITED) INCOME TAX BASIS SIX MONTHS ENDED JUNE 30, 1998 Revenues: Rental Income............................................. $2,088,959 Other Income.............................................. 74,862 ---------- Total Revenues.................................... 2,163,821 Expenses: Operating Expenses........................................ 884,161 General and Administrative Expenses....................... 129,773 Depreciation Expense...................................... 368,896 Interest Expense.......................................... 428,175 Property Tax Expense...................................... 291,952 ---------- Total Expenses.................................... 2,102,957 Net Income (Loss)........................................... $ 60,864 ==========
F-3 1575 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) INCOME TAX BASIS SIX MONTHS ENDED JUNE 30, 1998 Operating Activities: Net Income (loss)......................................... $ 60,864 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization............................. 368,896 Receivables and deposits and other assets.............. 383,285 Accounts Payable and accrued expenses.................. (220,092) ---------- Net cash provided by (used in) operating activities........................................ 592,953 ---------- Investing Activities Property improvements and replacements.................... (63,288) Net (increase)/decrease in restricted escrows............. (105,597) ---------- Net cash provided by (used in) investing activities........................................ (168,885) ---------- Financing Activities Payments on mortgage...................................... (84,757) ---------- Net cash provided by (used in) financing activities........................................ (84,757) ---------- Net increase (decrease) in cash and cash equivalents...... 339,311 Cash and cash equivalents at beginning of year............ 722,786 ---------- Cash and cash equivalents at end of period................ $1,062,097 ==========
F-4 1576 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of DFW Apartment Investors Limited Partnership as of June 30, 1998 and for the six months then ended have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 1577 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 1997 AND 1996 F-6 1578 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-8 Financial Statements Balance Sheets............................................ F-9 Statements of Income...................................... F-10 Statements of Partners' Capital........................... F-11 Statements of Cash Flows.................................. F-12 Notes to Financial Statements............................. F-13
F-7 1579 INDEPENDENT AUDITORS' REPORT To the Partners DFW Apartment Investors Limited Partnership We have audited the accompanying balance sheets of DFW Apartment Investors Limited Partnership as of December 31, 1997, and 1996, and the related statements of income, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DFW Apartment Investors Limited Partnership as of December 31, 1997, and 1996, and the results of its operations, changes in partners' capital and cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDER & SILVERMAN Bethesda, Maryland February 12, 1998 F-8 1580 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, ASSETS
1997 1996 ----------- ----------- Investment in real estate Land...................................................... $ 2,797,475 $ 2,797,475 Buildings and improvements, net of accumulated depreciation of $4,140,924 and $3,403,133.............. 10,851,342 11,328,221 ----------- ----------- 13,648,817 14,125,696 Other assets Cash and cash equivalents................................. 647,420 591,568 Accounts receivable....................................... 112,360 89,927 Tenant security deposits -- funded........................ 75,366 68,953 Mortgage escrow deposits.................................. 532,530 399,027 Replacement reserves...................................... 388,981 368,782 Prepaid expenses.......................................... -- 132,579 Deferred costs, net of accumulated amortization of $749,134 and $634,669.................................. 1,277,244 1,391,709 Deposits.................................................. 30,970 30,970 ----------- ----------- Total assets...................................... $16,713,688 $17,199,211 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities applicable to investment in real estate Mortgages payable......................................... $10,513,080 $10,671,464 Other liabilities Accounts payable and accrued expenses..................... 148,272 105,589 Accrued real estate taxes................................. 418,498 418,258 Accrued interest -- mortgages............................. 65,970 -- Tenant security deposits liability........................ 55,198 64,808 ----------- ----------- Total liabilities................................. 11,201,018 11,260,119 ----------- ----------- Partners' capital Investor limited partners................................. 6,033,566 6,446,711 General partner........................................... (520,896) (507,619) ----------- ----------- 5,512,670 5,939,092 ----------- ----------- Total liabilities and partners' capital........... $16,713,688 $17,199,211 =========== ===========
See notes to financial statements F-9 1581 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP STATEMENTS OF INCOME YEAR ENDED DECEMBER 31,
1997 1996 ---------- ---------- Revenue Rental, net of vacancies.................................. $4,153,239 $3,840,047 Interest.................................................. 32,743 59,166 Other..................................................... 75,040 111,394 ---------- ---------- 4,261,022 4,010,607 ---------- ---------- Operating expenses Leasing................................................... 298,727 148,797 General and administrative................................ 207,442 239,123 Management fees........................................... 209,666 195,660 Utilities................................................. 342,531 363,115 Repairs and maintenance................................... 475,238 511,763 Janitorial................................................ 48,079 38,864 Painting and decorating................................... 133,533 108,434 Insurance................................................. 125,181 145,341 Taxes..................................................... 510,741 457,592 ---------- ---------- Total operating expenses.......................... 2,351,138 2,208,689 ---------- ---------- Other expenses Mortgage interest expense................................. 797,112 569,437 Partnership expenses...................................... 136,824 203,469 Depreciation.............................................. 737,791 671,435 Amortization.............................................. 114,465 85,823 ---------- ---------- Total expenses.................................... 4,137,330 3,738,853 ---------- ---------- Net Income........................................ $ 123,692 $ 271,754 ========== ========== Net income allocated to general partner..................... $ 1,237 $ 2,718 ========== ========== Net income allocated to investor limited partners........... $ 122,455 $ 269,036 ========== ========== Net income per unit outstanding -- L.P...................... $ 594 $ 1,306 ========== ==========
See notes to financial statements F-10 1582 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1997 AND 1996
INVESTOR TOTAL GENERAL LIMITED PARTNERS' PARTNER PARTNERS CAPITAL --------- ------------ ------------ Balance, December 31, 1995......................... $(407,337) $ 17,234,725 $ 16,827,388 Distributions to partners.......................... (103,000) (11,057,050) (11,160,050) Net income......................................... 2,718 269,036 271,754 --------- ------------ ------------ Balance, December 31, 1996......................... (507,619) 6,446,711 5,939,092 Distributions to partners.......................... (14,514) (535,600) (550,114) Net income......................................... 1,237 122,455 123,692 --------- ------------ ------------ Balance, December 31, 1997......................... $(520,896) $ 6,033,566 $ 5,512,670 ========= ============ ============
See notes to financial statements F-11 1583 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1997 1996 ---------- ------------ Cash flows from operating activities Net income................................................ $ 123,692 $ 271,754 Adjustments to reconcile net income to net cash provided by operating activities Depreciation........................................... 737,791 671,435 Amortization........................................... 114,465 85,823 Changes in assets and liabilities Increase in accounts receivable...................... (22,433) (87,800) Decrease (increase) in prepaid expenses.............. 132,579 (12,274) Increase (decrease) in accounts payable and accrued expenses............................................ 33,287 (11,925) Increase in accrued real estate taxes................ 240 31,026 Increase in accrued interest -- mortgages............ 75,366 -- Decrease in security deposits -- net................. (16,023) (2,903) Increase in mortgage escrow deposits................. (133,503) (399,027) ---------- ------------ Net cash provided by operating activities......... 1,045,461 546,109 ---------- ------------ Cash flows from investing activities Investment in real estate................................. (260,912) (360,435) Increase in replacement reserves.......................... (20,199) (368,782) ---------- ------------ Net cash used in investing activities............. (281,111) (729,217) ---------- ------------ Cash flows from financing activities Distributions to partners................................. (550,114) (11,160,050) Proceeds from mortgages................................... -- 10,757,500 Principal payments on mortgages........................... (158,384) (86,036) Increase in deferred costs................................ -- (485,661) ---------- ------------ Net cash used in financing activities............. (708,498) (974,247) ---------- ------------ Net increase (decrease) in cash and cash equivalents.................................... 55,852 (1,157,355) Cash and cash equivalents, beginning........................ 591,568 1,748,923 ---------- ------------ Cash and cash equivalents, end.............................. $ 647,420 $ 591,568 ========== ============ Supplemental disclosure of cash flow information Cash paid during year for interest........................ $ 721,746 $ 569,437 ========== ============
See notes to financial statements F-12 1584 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DFW Apartment Investors Limited Partnership (the "Partnership") was formed April 25, 1990 under the laws of the State of Delaware for the purposes of acquiring, renovating, operating and otherwise dealing with certain residential apartments located in the Dallas/Fort Worth, Texas metropolitan area. The Partnership will terminate on December 31, 2040, or earlier upon the occurrence of certain events specified in the Partnership Agreement. The general partner of the Partnership is Winthrop Financial Associates, a Maryland Limited Partnership ("WFA"). WFC Realty Co., Inc., a Massachusetts Corporation ("WFC Realty"), a wholly-owned subsidiary of WFA, was the initial limited partner of the Partnership and withdrew as limited partner upon the first admission of investors. The Partnership sold 206 limited partnership units at $100,000 per unit. In accordance with the Partnership Agreement, losses and cash flow shall be allocated 99% to investor limited partners and 1% to WFA; income shall be allocated to the partners in proportion to the cash available for distribution distributable to the partners. If there is no such cash available for distribution, income will be allocated 95% to limited partners and 5% to WFA. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Accounting The accompanying financial statements have been prepared on the accrual basis in accordance with generally accepted accounting principles. Rental Property Rental property is carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives by use of the straight-line method for financial reporting purposes. For income tax purposes, accelerated lives and methods are used. Deferred Costs Deferred costs are amortized using the straight-line method over the term of the related agreement. Income Taxes No provision will be made for federal, state or local income taxes in the financial statements of the Partnership. Partners will be required to report on their tax returns their allocable shares of income, gains, losses, deductions and credits of the Partnership. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Partnership and tenants of the Properties are operating leases. F-13 1585 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents For purposes of the statement of cash flows, the Partnership considers all highly liquid investments consisting of a money market fund to be cash equivalents. NOTE B -- ACQUISITION OF THE PROPERTIES The Partnership acquired three separate residential apartment complexes (the "Properties") in 1990 for an aggregate purchase price of $14,013,732. The purchase represents an aggregate of 707 market-rate rental apartments in the Dallas, Texas area. On June 8, 1990, the Partnership acquired Heather Ridge Apartments for $5,104,350. On August 16, 1990 and September 19, 1990, the Partnership acquired Oak Forest Apartments and Summit on Post Oak Apartments for $4,409,382 and $4,500,000, respectively. The purchases were financed by a loan from Citibank, N.A. and an advance from WFA. NOTE C -- MORTGAGES PAYABLE On April 15, 1996, the Partnership obtained three mortgage loans by the same lender in the aggregate amount of $10,757,500 which are collateralized by deeds of trust on the three rental properties. The notes bear interest at a rate of 7.53%. Principal and interest are payable by the Partnership in monthly installments of $79,707. A balloon payment of approximately $9,492,902 and the accrued interest is payable in full on May 1, 2003. Under agreements with the mortgage lender, the Partnership is required to make monthly escrow deposits for taxes and insurance. The liability of the Partnership under the mortgage notes are limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgages payable over each of the next five years are as follows:
DECEMBER 31, ------------ 1998................................... $170,739 1999................................... 184,049 2000................................... 198,396 2001................................... 213,862 2002................................... 230,533
NOTE D -- MORTGAGE RESERVES HELD IN ESCROW The Partnership has set up various reserve escrows with the mortgage lender in connection with the mortgage loan. The replacement reserve in the amount of $388,981 and $368,782 at December 31, 1997 and 1996, respectively, secures the Partnership's agreement to undertake certain improvements to the property over the life of the mortgage loan. The amount of this Reserve will be reduced as improvements are completed. An escrow for taxes and insurance has been set up under the mortgage agreement. All taxes and insurance will be paid by the mortgage lender out of these escrow accounts. The amounts held in escrow for insurance and taxes at December 31, 1997 and 1996 is $532,530 and $399,027, respectively. The mortgage lender has the right to draw upon these escrows in the event that the Partnership defaults in the performance of its obligations under the mortgage loan, including its obligations to pay principal and F-14 1586 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) interest. The reserve shall be invested in interest bearing instruments. Interest earned during 1997 and 1996 amounted to $4,870 and $4,912, respectively. NOTE E -- RELATED PARTY TRANSACTIONS The Partnership has incurred charges and commitments to affiliates of its general partner. Related party transactions include the following: (a) The Partnership paid to an affiliate of the general partner, Winthrop Management, an annual property management fee equal to 5% of gross operating revenues for the properties through October 27, 1997. Fees of $172,882 and $195,660 were charged to operations for the years ended December 31, 1997 and 1996, respectively. (b) On October 28, 1997, the Partnership terminated Winthrop Management as the managing agent, and appointed Insignia Residential Group of Texas, Inc. ("Insignia") as the new management agent (see Note G to the financial statements). The management agreement provides for a management fee equal to 5% of gross operating revenues for the properties. Fees of $36,784 were charged to operations for the year ended December 31, 1997. (c) Effective October 28, 1997, the Partnership charged operations for asset management fees and costs reimbursements payable to an affiliate of Insignia. Fees and reimbursements of $10,038 and $8,776, respectively, are included in partnership expenses for the year ended December 31, 1997. At December 31, 1997, $18,114 remains payable. The Partnership paid to WFA an annual administration and investor service fee of $40,000. This fee was to increase 5% annually from 1991 to 1995, and commencing in 1996 the fee was to increase 6% annually. Fees of $28,925 and $54,114 are included in partnership expenses during the years ended December 31, 1997 and 1996, respectively. NOTE F -- CONCENTRATION OF CREDIT RISK At December 31, 1997, the Partnership has cash in the amount of $921,511 held by the mortgage lender. The account is insured by the Federal Deposit Insurance Corporation up to $100,000 an account. The uninsured portion of this balance at December 31, 1997 is $336,734. NOTE G -- OTHER INFORMATION On October 28, 1997, Insignia Financial Group acquired 100% of the Class B stock of First Winthrop Corporation, an affiliate of the general partner (WPLP). F-15 1587 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 [WINTHROP LOGO] F-16 1588 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-18 Financial Statements Balance Sheets............................................ F-19 Statements of Income...................................... F-20 Statements of Partners' Capital........................... F-21 Statements of Cash Flows.................................. F-22 Notes to Financial Statements............................. F-23
F-17 1589 INDEPENDENT AUDITORS' REPORT To the Partners DFW Apartment Investors Limited Partnership We have audited the accompanying balance sheets of DFW Apartment Investors Limited Partnership as of December 31, 1996, and 1995, and the related statements of income, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DFW Apartment Investors Limited Partnership as of December 31, 1996, and 1995, and the results of its operations, changes in partners' capital and cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDER & SILVERMAN Bethesda, Maryland February 7, 1997 F-18 1590 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, ASSETS
1996 1995 ----------- ----------- Investment in real estate Land...................................................... $ 2,797,475 $ 2,797,475 Building and improvements, net of accumulated depreciation of $3,403,133 and $2,731,698........................... 11,328,221 11,639,221 ----------- ----------- 14,125,696 14,436,696 Other assets Cash and cash equivalents................................. 591,568 1,748,923 Accounts receivable and security deposits................. 158,880 71,080 Mortgage escrow deposits.................................. 399,027 -- Replacement reserves...................................... 368,782 -- Prepaid and other assets.................................. 163,549 151,275 Deferred costs, net of accumulated amortization of $634,669 and $548,846.................................. 1,391,709 991,871 ----------- ----------- Total assets...................................... $17,199,211 $17,399,845 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities applicable to investment in real estate Mortgages payable......................................... $10,671,464 $ -- Other liabilities Accounts payable and accrued expenses..................... 41,495 59,222 Accrued real estate taxes................................. 418,258 387,232 Accrued expenses and other liabilities.................... 64,094 58,292 Tenant security deposits.................................. 64,808 67,711 ----------- ----------- Total liabilities................................. 11,260,119 572,457 ----------- ----------- Partners' capital Investor limited partners................................. 6,446,711 17,234,725 General partner........................................... (507,619) (407,337) ----------- ----------- 5,939,092 16,827,388 ----------- ----------- Total liabilities and partners' capital........... $17,199,211 $17,399,845 =========== ===========
See notes to financial statements F-19 1591 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP STATEMENTS OF INCOME YEAR ENDED DECEMBER 31,
1996 1995 ---------- ---------- Revenue Rental.................................................... $3,840,047 3,580,689 Interest.................................................. 59,166 86,143 Other..................................................... 111,394 118,884 ---------- ---------- 4,010,607 3,785,716 ---------- ---------- Operating expenses Leasing................................................... 148,797 132,193 General and administrative................................ 239,123 232,732 Management fees........................................... 249,774 237,556 Utilities................................................. 363,115 361,510 Repairs and maintenance................................... 511,763 488,019 Janitorial................................................ 38,864 51,985 Painting and decorating................................... 108,434 106,450 Insurance................................................. 145,341 173,868 Taxes..................................................... 457,592 442,293 ---------- ---------- Total operating expenses.......................... 2,262,803 2,226,606 ---------- ---------- Other expenses Mortgage interest expense................................. 569,437 -- Partnership expenses...................................... 149,355 61,915 Depreciation.............................................. 671,435 604,413 Amortization.............................................. 85,823 46,348 ---------- ---------- Total expenses.................................... 3,738,853 2,939,282 ---------- ---------- Net Income........................................ $ 271,754 $ 846,434 ========== ========== Net income allocated to general partner..................... $ 2,718 $ 8,464 ========== ========== Net income allocated to investor limited partners........... $ 269,036 $ 837,970 ========== ==========
See notes to financial statements F-20 1592 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1996 AND 1995
INVESTOR GENERAL LIMITED TOTAL PARTNER'S PARTNERS' PARTNERS' DEFICIT CAPITAL CAPITAL --------- ------------ ------------ Balance, December 31, 1994........................... $(407,158) $ 17,339,205 $ 16,932,047 Distributions........................................ (8,643) (942,450) (951,093) Net income........................................... 8,464 837,970 846,434 --------- ------------ ------------ Balance, December 31, 1995........................... (407,337) 17,234,725 16,827,388 Distributions........................................ (103,000) (11,057,050) (11,160,050) Net income........................................... 2,718 269,036 271,754 --------- ------------ ------------ Balance, December 31, 1996........................... $(507,619) $ 6,446,711 $ 5,939,092 ========= ============ ============
F-21 1593 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1996 1995 ------------ ---------- Cash flows from operating activities Net income................................................ $ 271,754 $ 846,434 Adjustments to reconcile net income to net cash provided by operating activities Depreciation........................................... 671,435 604,413 Amortization........................................... 85,823 46,348 Changes in assets and liabilities (Increase) decrease in accounts receivable........... (87,800) 106,826 Increase in prepaid and other assets................. (12,274) (125,033) (Decrease) increase in accounts payable.............. (17,727) 1,078 Increase in accrued real estate taxes................ 31,026 64,343 Decrease in security deposits........................ (2,903) (16,540) Increase (decrease) in accrued expenses and other liabilities......................................... 5,802 (3,324) Increase in mortgage escrow deposits................. (399,027) -- ------------ ---------- Net cash provided by operating activities......... 546,109 1,524,545 ------------ ---------- Cash flows from investing activities Purchase of building improvements and personal property... (360,435) (457,171) Increase in replacement reserves.......................... (368,782) -- ------------ ---------- Net cash used in investing activities............. (729,217) (457,171) ------------ ---------- Cash flows from financing activities Distributions............................................. (11,160,050) (951,093) Proceeds from mortgages................................... 10,757,500 -- Principal payments on mortgages........................... (86,036) -- Increase in deferred costs................................ (485,661) -- ------------ ---------- Net cash used in financing activities............. (974,247) (951,093) ------------ ---------- Net increase (decrease) in cash and cash equivalents..................................... (1,157,355) 116,281 Cash and cash equivalents, beginning........................ 1,748,923 1,632,642 ------------ ---------- Cash and cash equivalents, end.............................. $ 591,568 $1,748,923 ============ ========== Supplemental disclosure of cash flow information Cash paid during year for interest........................ $ 569,437 $ -- ============ ==========
See notes to financial statements F-22 1594 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DFW Apartment Investors Limited Partnership (the "Partnership") was formed April 25, 1990 under the laws of the State of Delaware for the purposes of acquiring, renovating, operating and otherwise dealing with certain residential apartments located in the Dallas/Fort Worth, Texas metropolitan area. The Partnership will terminate on December 31, 2040, or earlier upon the occurrence of certain events specified in the Partnership Agreement. The general partner of the Partnership is Winthrop Financial Associates, a Maryland limited partnership ("WFA"). WFC Realty Co., Inc., a Massachusetts corporation ("WFC Realty"), a wholly-owned subsidiary of WFA, was the initial limited partner of the partnership and withdrew as limited partner upon the first admission of investors. The partnership sold 206 limited partnership units at $100,000 per unit. In accordance with the Partnership Agreement, losses and cash flow shall be allocated 99% to investor limited partners and 1% to WFA; income shall be allocated to the partners in proportion to the cash available for distribution distributable to the partners. If there is no such cash available for distribution, income will be allocated 95% to limited partners and 5% to WFA. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Accounting The accompanying financial statements have been prepared on the accrual basis in accordance with generally accepted accounting principles. Rental Property Rental property is carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives by use of the straight-line method for financial reporting purposes. For income tax purposes, accelerated lives and methods are used. Deferred Costs Deferred costs are amortized using the straight-line method over the term of the related agreement. Income Taxes No provision will be made for federal, state or local income taxes in the financial statements of the Partnership. Partners will be required to report on their tax returns their allocable shares of income, gains, losses, deductions and credits of the Partnership. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the partnership and tenants of the properties are operating leases. F-23 1595 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents For purposes of the statement of cash flows, the partnership considers all highly liquid investments consisting of a money market fund to be cash equivalents. The carrying amount of $528,585 approximates fair value because of the short maturity of this investment. NOTE B -- ACQUISITION OF THE PROPERTIES The Partnership acquired three separate residential apartment complexes (the "Properties") in 1990 for an aggregate purchase price of $14,013,732. The purchase represents an aggregate of 707 market-rate rental apartments in the Dallas, Texas area. On June 8, 1990, the Partnership acquired Heather Ridge Apartments for $5,104,350. On August 16, 1990 and September 19, 1990, the Partnership acquired Oak Forest Apartments and Summit on Post Oak Apartments for $4,409,382 and $4,500,000, respectively. The purchases were financed by a loan from Citibank., N.A. and an advance from WFA. NOTE C -- MORTGAGES PAYABLE On April 15, 1996, the Partnership obtained three mortgage loans by the same lender in the aggregate amount of $10,757,500 and are collateralized by deeds of trust on the rental properties. The notes bear interest at a rate of 7.53%. Principal and interest are payable by the partnership in monthly installments of $79,707. A balloon payment of approximately $9,492,902 and the accrued interest is payable in full on May 1, 2003. Under agreements with the mortgage lender, the Partnership is required to make monthly escrow deposits for taxes and insurance. The liability of the Partnership under the mortgage notes are limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgage payable over each of the next five years are as follows:
DECEMBER 31, ------------ 1997................................... $155,592 1998................................... 170,739 1999................................... 184,049 2000................................... 198,396 2001................................... 213,862
NOTE D -- MORTGAGE RESERVES HELD IN ESCROW The Partnership has set up various reserve escrows with the Mortgage Lender in connection with the Mortgage Loan. The Replacement Reserve in the amount of $368,782 and $0 at December 31, 1996 and 1995 secures the Partnership's agreement to undertake certain improvements to the Property over the life of the mortgage loan. The amount of this Reserve will be reduced as improvements are completed. An escrow for taxes and insurance has been set up under the Mortgage Agreement. All taxes and insurance will be paid by the Mortgage Lender out of these escrow accounts. The amounts held in escrow for insurance and taxes at December 31, 1996 and 1995 is $399,027 and $0. The Mortgage Lender has the right to draw upon these escrows in the event that the Partnership defaults in the performance of its obligations under the Mortgage Loan, including its obligations to pay principal and F-24 1596 DFW APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) interest. The Reserve shall be invested in interest bearing instruments. Interest earned during 1996 and 1995 amounted to $4,912 and $0. NOTE E -- RELATED PARTY TRANSACTIONS The Partnership has incurred charges and commitments to companies affiliated with the general partner. Related party transactions with WFA and its affiliates include the following: The Partnership pays to an affiliate of WFA an annual property management fee equal to 5% of gross operating revenues for the properties. Fees of $195,660 and $186,505 were charged to operations during the years ended December 31, 1996 and December 31, 1995, respectively. The Partnership pays to WFA an annual administration and investor service fee of $40,000. This fee increased 5% annually from 1991 to 1995, and commencing in 1996 the fee is increased 6% annually. Fees of $54,114 and $51,051, respectively, were charged to operations during the years ended December 31, 1996 and 1995, respectively. NOTE F -- CONCENTRATION OF CREDIT RISK At December 31, 1996, the Partnership has cash in the amount of $820,370 held by the Mortgage Lender. The account is insured by the Federal Deposit Insurance Corporation up to $100,000 an account. The uninsured portion of this balance at December 31, 1996 is $252,427. F-25 1597 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 1598 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 1599 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 September , 1998 A-3 1600 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF DFW RESIDENTIAL 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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 apartment properties to holding an interest in our large portfolio of properties. - 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 1601 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 Comparison of Tax-Deferral % Preferred OP Units and Class I Preferred Stock.......... S-15 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-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 DFW Residential 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40
PAGE ---- Fees and Expenses............................ S-41 Accounting Treatment......................... S-41 DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-58 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70
i 1602
PAGE ---- YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71 Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76
PAGE ---- Distributions and Transfers of Units......... S-76 Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 1603 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 DFW Residential 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 1604 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 1605 - 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 tending 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 $1,400 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 distributions of $ 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 small number of apartment 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 S-3 1606 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 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 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 of $ consideration is fair. However, your units are not listed on any national securities exchange nor quoted on the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1607 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 100% of 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? 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: 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 1608 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 1609 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. 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. 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 5 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. 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 S-7 1610 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. 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 Code. The particular tax consequences to you of the exchange 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 small number of apartment 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. S-8 1611 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 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 S-9 1612 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 1613 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, 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. 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 S-11 1614 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 11.40% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 1615 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. 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." S-13 1616 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 1617 - 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 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. COMPARISON OF TAX-DEFERRAL % PREFERRED OP UNITS AND CLASS I PREFERRED STOCK There are a number of significant differences between Tax-Deferral % Preferred OP Units and Class I Preferred Stock relating to, among other things, the nature of the investment, voting rights, distributions, liquidity and transfer and redemption rights. See "Comparison of Preferred OP Units and Class I Preferred Stock" for a chart highlighting such differences. 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 S-15 1618 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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. S-16 1619 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 1620 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, the general partner of your partnership is entitled to fees for its services as general partner while the general partner of the AIMCO Operating Partnership is not entitled to such fees. 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual fee of $25,000 beginning in 1990 and increasing annually at a rate of 5% beginning in 1991 from your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager which received management fees of $125,608 in 1996, $129,884 in 1997 and $68,056 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. S-18 1621 YOUR PARTNERSHIP Your Partnership and its Property. DFW Residential Investors Limited Partnership is a Delaware limited partnership which was formed on January 11, 1990 for the purpose of owning and operating a small number of apartment properties located in Euless, Texas and North Arlington, Texas, known as "Hunt Club Apartments" and "Riverbend Village Apartments," respectively. In 1990, it completed a private placement of units that raised net proceeds of approximately $13,600,000. Hunt Club and consists of 204 apartment units and Riverbend Village Apartments consists of 201 apartment units. Your partnership has no employees. Property Management. Since November 1997, your partnership's property has been managed by an entity which is now an affiliate of ours. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2040, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage notes outstanding on "Hunt Club Apartments" of $3,342,334 and on "River Bend Apartments" of $3,716,129, payable to AMI Capital, which bear interest at a rate of 7.61%. The mortgage debt is due December 2002. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1622 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, 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 1623
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 1624 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 1625
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 1626 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 1627 SUMMARY FINANCIAL INFORMATION OF DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP The summary financial information of DFW Residential Investors Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for DFW Residential Investors Limited Partnership 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 of Your Partnership" included herein. See "Index to Financial Statements." DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------ ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ---- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues..................... $ 1,371,008 $0 $ 2,688,748 $ 2,733,466 $ 2,473,889 $ 2,322,347 $ 2,199,880 Net Income/(Loss).................. 107,439 0 71,243 195,948 685,778 640,330 557,377 BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation..................... 9,120,257 0 9,308,301 9,564,068 9,619,624 9,706,408 9,811,414 Total Assets....................... $10,898,443 $0 $11,058,358 $11,326,084 $18,502,947 $11,327,535 $11,529,653 Mortgage Notes Payable, including Accrued Interest................. 7,103,791 0 7,158,375 7,225,442 7,318,515 0 0 Partners' Capital/(Deficit)........ $ 3,570,120 $0 $ 3,462,681 $ 3,583,763 $10,955,001 $10,882,235 $11,123,411
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $1,400.00
S-25 1628 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. 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 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 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. S-26 1629 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 Code. 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 therefore 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 apartment 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 S-27 1630 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 year ended December 31, 1997 were $1,400 per unit. 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 an 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 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. 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. S-28 1631 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently own an 11.40% limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 1632 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. S-30 1633 - 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 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 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 1634 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 1635 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 1636 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. 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. S-34 1637 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." 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. 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. S-35 1638 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, (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 9:00 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 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, Denver, Colorado time. S-36 1639 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 1640 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. 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 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 S-38 1641 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 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 S-39 1642 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 1643 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. 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. 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-41 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-42 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 payment. 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 OP Units and any such S-43 1646 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-44 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-45 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-46 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-47 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-48 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-49 1652 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 1653 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-51 1654 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 1655 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 1656 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 1657 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 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, a third party expert, 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 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 the $2.25, and distributions with respect to your units for the year ended December 31, 1997 were $1,400. 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 an 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-55 1658 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-56 1659 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 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. S-57 1660 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 1661 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 September 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 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 property was 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, S-59 1662 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 1663 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Hunt Club Apartments and Riverbend Village Partnership owns interests (either directly or through Apartments. 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 2040. 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, finance and conduct any business that may be lawfully conducted by otherwise deal with your partnership's property. a limited partnership organized pursuant to the Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as agreement of limited partnership, your partnership may amended from time to time, or any successor to such perform all act necessary, advisable or convenient to statute) (the "Delaware Limited Partnership Act"), the business of your partnership including borrowing provided that such business is to be conducted in a 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-61 1664 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 136 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 partner 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. interest and, with the consent of the limited partners, Subject to Delaware law, any additional partnership issue other equity interests. Such interests may be interests may be issued in one or more classes, or one sold on such terms and conditions and the additional or more series of any of such classes, with such limited partners shall have such rights and obligations designations, preferences and relative, partici- as the general partner shall determine. In the event pating, optional or other special rights, powers and the general partner sells additional limited partner duties as shall be determined by the general partner, interest, prior to the sale of such interests, the in its sole and absolute discretion without the general partner will offer such interests to the approval of any OP Unitholder, and set forth in a original limited partners. 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 contract with the funds or other assets to its subsidiaries or other general partner or its affiliates for various goods and persons in which it has an equity investment, and such services, including without limitation, insurance, persons may borrow funds from the AIMCO Operating insurance brokerage, mortgage brokerage in connection Partnership, on terms and conditions established in the with financings and refinancings of your partnership's sole and absolute discretion of the general partner. To property, management, rehabilitation, construction the extent consistent with the business purpose of the supervision, leasing and property brokerage. The AIMCO Operating Partnership and the permitted compensation paid under such contracts must be at the activities of the general partner, the AIMCO Operating then prevailing market rates in the vicinity of your Partnership may transfer assets to joint ventures, partnership's property. The partnership may not make limited liability companies, partnerships, loans to the general partner or its affiliates but the corporations, business trusts or other business general partner and its affiliates may lend money to entities in which it is or thereby becomes a your partnership if such loan is evidenced by a participant upon such terms and subject to such promissory note, bears interest at a commercially conditions consistent with the AIMCO Operating Part- reasonable rate not in excess of 3% above the "base nership Agreement and applicable law as the general rate" of the First National Bank of Boston and the partner, in its sole and absolute discretion, believes obligation is subordinate to the obligations of your to be advisable. Except as expressly permitted by the partnership to pay unrelated creditors. 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, 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. other things, its ability to incur indebtedness. See "Risk Factors -- Risks of Significant Indebtedness" in the accompanying Prospectus.
S-62 1665 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 kept with a statement of the purpose of such demand and at by your partnership which lists the names of all such OP Unitholder's own expense, to obtain a current limited partners and the number of units owned by each list of the name and last known business, residence or limited partner at any reasonable time during normal mailing address of the general partner and each other business hours. OP Unitholder.
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 your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business, to bind your partnership by its Inc., which is the general partner. No OP Unitholder sole signature and take any action it deems necessary has any right to participate in or exercise control or 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, 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 failures omission if the general partner acted in good faith. to act was in the best interests of your partnership, The AIMCO Operating Partnership Agreement provides for and such course of conduct did not constitute negli- indemnification of AIMCO, or any director or officer of gence or misconduct on the part of such person. In AIMCO (in its capacity as the previous general partner addition, the general partner and its affiliates are of the AIMCO Operating Partnership), the general entitled to indemnification by your partnership against partner, any officer or director of general partner or any loss, damage, liability, cost or expense sustained the AIMCO Operating Partnership and such other persons by it or them in connection with your partnership, as the general partner may designate from and against provided that such loss, damage, liability, cost or all losses, claims, damages, liabilities, joint or expense was not the result of negligence or misconduct several, expenses (including legal fees), fines, by such person. However, neither the general partner settlements and other amounts incurred in connection nor any affiliate will be indemnified for any loss, with any actions relating to the operations of the damage or cost resulting from the violation of any AIMCO Operating Partnership, as set forth in the AIMCO Federal or state securities laws in connection with the Operating Partnership Agreement. The Delaware Limited sale of units unless (i) there has been a successful Partnership Act provides that subject to the standards adjudication on the merits of each count involving the and restrictions, if any, set forth in its partnership securities law violations, (ii) such claims have been agreement, a limited partnership may, and shall have dismissed with prejudice on the merits by a court of the power to, indemnify and hold harmless any partner competent jurisdiction or (ii) or court of competent or other
S-63 1666 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP jurisdiction approves a settlement of such claims. In person from and against any and all claims and demands such claim for indemnification for Federal or state whatsoever. It is the position of the Securities and securities law violation, the party seeking Exchange Commission that indemnification of directors indemnification must place before the court the and officers for liabilities arising under the position of the SEC and any other applicable regulatory Securities Act is against public policy and is agency with respect of the issue of indemnification for unenforceable pursuant to Section 14 of the Securities securities law violations. Any such indemnity provided Act of 1933. shall be paid, from and only to the extent of, your partnership's assets.
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. A general partner may withdraw AIMCO Operating Partnership by the OP Unitholders with voluntarily from your partnership only if there is or without cause. Under the AIMCO Operating Partnership another general partner or a successor is elected. The Agreement, the general partner may, in its sole general partner may admit an additional or substitute discretion, prevent a transferee of an OP Unit from general partner with the consent of limited partners becoming a substituted limited partner pursuant to the owning more than 50% of the units. A limited partner AIMCO Operating Partnership Agreement. The general may not transfer his interests without the consent of partner may exercise this right of approval to deter, the general partners which may be withheld at the sole delay or hamper attempts by persons to acquire a discretion of the general partner. 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 to cure any ambiguity in the AIMCO Operating Partnership Agreement, whereby or correct or supplement any provision of your the general partner may, without the consent of the OP partnership's agreement of limited partnership which is Unitholders, amend the AIMCO Operating Partnership inconsistent with any other provision and to comply Agreement, amendments to the AIMCO Operating with applicable tax and securities laws. No amend- Partnership Agreement require the consent of the ments may be made which affect the obligation of the holders of a majority of the outstanding Common OP limited partners to make their required capital Units, excluding AIMCO and certain other limited contribution or affect the timing or amount of the fees exclusions (a "Majority in Interest"). Amendments to paid by your partnership and no amendments may be made the AIMCO Operating Partnership Agreement may be which adversely the rights of or the share of profits, proposed by the general partner or by holders of a losses and distributions allocable or distributable to Majority in Interest. Following such proposal, the a partner without the consent of the affected partner. general partner will submit any proposed amendment to Other amendments to your partnership's agreement of the OP Unitholders. The general partner will seek the limited partnership must be approved by the limited written consent of the OP Unitholders on the proposed partners owning more than 50% of the units and the amendment or will call a meeting to vote thereon. See general partner. Certain specified provisions of your "Description of OP Units -- Amendment of the AIMCO partnership's agreement of limited partnership require Operating Partnership Agreement" in the accompanying the consent of all limited partners. Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives an annual fee of $25,000 beginning in 1990 and capacity as general partner of the AIMCO Operating increasing annually at a rate of 5% beginning in 1991. Partnership. In addition, the AIMCO Operating Part- Moreover, the general partner or certain affiliates may nership is responsible for all expenses incurred be entitled to compensation for additional services relating to the AIMCO Operating Partnership's ownership rendered. 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-64 1667 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 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 has been fully paid, no ment in the AIMCO Operating Partnership. However, the limited partners will be required to make any further limitations on the liability of limited partners for capital contributions or lend any funds to your the obligations of a limited partnership have not been partnership, except as otherwise required by applica- clearly established in some states. If it were ble 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 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 and its affiliates may engage in or possess an expressly authorizes the general partner to enter into, interest in other business ventures of every nature and on behalf of the AIMCO Operating Partnership, a right description, including, without limitation, real estate of first opportunity arrangement and other conflict business ventures, whether or not such other avoidance agreements with various affiliates of the enterprises shall be in competition with any activities AIMCO Operating Partnership and the general partner, on of your partnership. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 1668 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 or the merger or law or by the AIMCO Operating its interest in the AIMCO Operating other reorganization of Partnership Agree- Part-
S-66 1669 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS your partnership and authorize the ment, the affirmative vote or nership or the admission of a issuance of other equity interests consent of holders of at least 50% successor general partner. in your partnership. The consent of of the outstanding Preferred OP a limited partner will be deemed to Units will be necessary for Under the AIMCO Operating Partner- be granted if he does not refuse, effecting any amendment of any of ship Agreement, the general partner in writing, to consent within the provisions of the Partnership has the power to effect the thirty days after he receives Unit Designation of the Preferred acquisition, sale, transfer, notice requesting his consent. OP Units that materially and exchange or other disposition of adversely affects the rights or any assets of the AIMCO Operating A general partner may cause the preferences of the holders of the Partnership (including, but not dissolution of the your partnership Preferred OP Units. The creation or limited to, the exercise or grant by retiring. Your partnership may issuance of any class or series of of any conversion, option, be continued by the remaining partnership units, including, privilege or subscription right or general partner or, if none, the without limitation, any partner- any other right available in limited partners may agree to ship units that may have rights connection with any assets at any continue your partnership by senior or superior to the Preferred time held by the AIMCO Operating electing a successor general OP Units, shall not be deemed to Partnership) or the merger, partner by unanimous written materially adversely affect the consolidation, reorganization or consent within 120 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 Cash Flow 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 as de- and from time to time on or after in its sole and absolute discretion termined by the general partner, the fifth anniversary of the issue determine, of Available Cash (as and in any event shall be made date of the Preferred OP Units, the defined in the AIMCO Operating within 60 days after the close of AIMCO Operating Partnership may Partnership Agreement) generated by each fiscal year. 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. Your dividend rate on the most recently with respect to such quarter, in partnership has made distributions issued AIMCO non-convertible accordance with their respective in the past and is projected to preferred stock which ranks on a interests in the AIMCO Operating make distributions in 1998. parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-67 1670 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 who is not a Preferred OP Units and the OP Units. The AIMCO Operating Part- minor or incompetent, except in Preferred OP Units are not listed nership Agreement restricts the limited situations, and such person on any securities exchange. The transferability of the OP Units. may be substituted as a limited Preferred OP Units are subject to Until the expiration of one year partner provided that: (1) the restrictions on transfer as set from the date on which an OP transfer complies with the forth in the AIMCO Operating Unitholder acquired OP Units, then-applicable rules and Partnership Agreement. subject to certain exceptions, such regulations of any governmental OP Unitholder may not transfer all authority with jurisdiction over Pursuant to the AIMCO Operating or any portion of its OP Units to the disposition, (2) except in Partnership Agreement, until the any transferee without the consent specified circumstances, the expiration of one year from the of the general partner, which interest transferred is not less date on which a holder of Preferred consent may be withheld in its sole than 1/2 unit, (3) the transfer, OP Units acquired Preferred OP and absolute discretion. After the when added to all other assignments Units, subject to certain expiration of one year, such OP taking place in the preceding 12 exceptions, such holder of Unitholder has the right to month does not result in Preferred OP Units may not transfer transfer all or any portion of its termination of the partnership for all or any portion of its Pre- OP Units to any person, subject to tax purposes, (4) the approval of ferred OP Units to any transferee the satisfaction of certain the general partner which may be without the consent of the general conditions specified in the AIMCO withheld in the sole and absolute partner, which consent may be Operating Partnership Agreement, discretion of the general partner withheld in its sole and absolute including the general partner's has been granted and (5) the discretion. After the expiration of right of first refusal. See assignor and assignee have complied one year, such holders of Preferred "Description of OP Units -- with such other conditions as set OP Units has the right to transfer Transfers and Withdrawals" in the forth in your partnership's all or any portion of its Preferred accompanying Prospectus. agreement of limited partnership. OP Units to any person, subject to the satisfaction of
S-68 1671 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS There are no redemption rights certain conditions specified in the After the first anniversary of associated with your units. AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 1672 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual fee of $25,000 beginning in 1990 and increasing annually at a rate of 5% beginning in 1991 from your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $125,608 in 1996, $129,884 in 1997 and $68,056 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's 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'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 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-70 1673 YOUR PARTNERSHIP GENERAL DFW Residential Investors Limited Partnership is a Delaware limited partnership which raised net proceeds of approximately $13,600,000 in 1990 through a private offering. The promoter for the private offering of your partnership was Winthrop Securities Co., Inc. Insignia acquired your partnership in November 1997. AIMCO acquired Insignia in October, 1998. There are currently a total of 130 limited partners of your partnership and a total of 136 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the small number of apartment properties described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on January 11, 1990 for the purpose of owning and operating a small number of apartment properties located in Euless, Texas and North Arlington, Texas, known as "Hunt Club Apartments" and "Riverbend Village Apartments," respectively. There are 204 apartment units in "Hunt Club Apartments" consisting of 120 one-bedroom apartments, 75 two-bedroom apartments and 9 three-bedroom apartments. The total rentable square footage is 175,780 square feet and the average annual rent per apartment unit is $6,904. "River Bend Apartments" has 201 apartment units. There are 120 one-bedroom apartments and 81 two-bedroom apartments. The total rentable square footage is 151,799 square feet. The average annual rent per apartment unit is $5,861. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1997, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $125,608, $129,884 and $68,056, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2040 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 1674 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had current mortgage notes outstanding on "Hunt Club Apartments" of $3,342,334 and on "River Bend Apartments" of $3,716,129. Both mortgage notes are payable to AMI Capital, bear interest at a rate of 7.61% and are due December 2002. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 1675 Below is selected financial information for DFW Residential Investors Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 736,850 Not $ 541,315 $ 357,901 $ 7,803,221 $ 896,321 $ 899,943 Land & Building.............. 11,967,492 Available 11,930,294 11,735,578 11,390,037 11,129,325 10,911,203 Accumulated Depreciation..... (2,847,235) 0 (2,621,993) (2,171,510) (1,770,413) (1,422,917) (1,099,789) Other Assets................. 1,041,336 0 1,208,742 1,404,115 1,080,102 724,806 818,296 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $10,898,443 $ 0 $11,058,358 $11,326,084 $18,502,947 $11,327,535 $11,529,653 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... 7,103,791 7,158,375 7,225,442 7,318,515 0 Other Liabilities............ 224,532 437,302 516,879 229,431 445,300 406,242 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... $ 7,328,323 $ 0 $ 7,595,677 $ 7,742,321 $ 7,547,946 $ 445,300 $ 406,242 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $ 3,570,120 $ 0 $ 3,462,681 $ 3,583,763 $10,955,001 $10,882,235 $11,123,411 =========== =========== =========== =========== =========== =========== ===========
DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------ -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ----------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue...................... $1,319,380 $2,618,642 $2,544,733 $2,367,720 $2,242,813 $2,115,994 Other Income........................ 51,628 70,106 188,733 106,169 79,534 83,886 ---------- --------- ---------- ---------- ---------- ---------- ---------- Total Revenue.............. $1,371,008 $ 0 $2,688,748 $2,733,466 $2,473,889 $2,322,347 $2,199,880 ---------- --------- ---------- ---------- ---------- ---------- ---------- Operating Expenses.................. 512,830 0 974,990 995,515 1,015,220 964,364 922,216 General & Administrative............ 68,056 287,873 232,301 144,085 128,563 173,398 Depreciation........................ 225,242 450,483 401,097 347,496 323,128 314,343 Interest Expense.................... 302,058 545,408 558,076 0 0 2,221 Property Taxes...................... 155,383 358,751 350,529 281,310 265,962 230,325 ---------- --------- ---------- ---------- ---------- ---------- ---------- Total Expenses............. $1,263,569 $ 0 $2,617,505 $2,537,518 $1,788,111 $1,682,017 $1,642,503 ---------- --------- ---------- ---------- ---------- ---------- ---------- Net Income.......................... $ 107,439 $ 0 $ 71,243 $ 195,948 $ 685,778 $ 640,330 $ 557,377 ========== ========= ========== ========== ========== ========== ==========
S-73 1676 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Due to this partnership being a recent acquisition, very little discussion is available for variances. Results of Operations Six Months Ended June 30, 1998 Due to this partnership being a recent acquisition, no data is available for the six months ended June 30, 1997. Net Income Your partnership recognized net income of $107,439 for the six months ended June 30, 1998. Revenues Rental and other property revenues from the partnership's property totaled $1,371,008 for the six months ended June 30, 1998. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $512,830 for the six months ended June 30, 1998. Management expenses totaled $68,056 for the six months ended June 30, 1998. General and Administrative Expenses General and administrative expenses totaled $68,056 for the six months ended June 30, 1998. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $302,058 for the six months ended June 30, 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $71,243 for the year ended December 31, 1997, compared to $195,948 for the year ended December 31, 1996. The decrease in net income of $124,705, or 63.64% was primarily the result of increased general and administrative expenses and decreased revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,688,748 for the year ended December 31, 1997, compared to $2,733,466 for the year ended December 31, 1996, a decrease of $44,718, or 1.64%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $974,990 for the year ended December 31, 1997, compared to $995,515 for the year ended December 31, 1996, a S-74 1677 decrease of $20,525 or 2.06%. Management expenses totaled $129,884 for the year ended December 31, 1997, compared to $125,608 for the year ended December 31, 1996, an increase of $4,276, or 3.40%. General and Administrative Expenses General and administrative expenses totaled $287,873 for the year ended December 31, 1997 compared to $232,301 for the year ended December 31, 1996, an increase of $55,572 or 23.92%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $545,408 for the year ended December 31, 1997, compared to $558,076 for the year ended December 31, 1996, a decrease of $12,668, or 2.27%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $195,948 for the year ended December 31, 1996, compared to $685,778 for the year ended December 31, 1995. The decrease in net income of $489,830, or 71.43% was primarily the result of increased interest expenses offset by an increase in revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,733,466 for the year ended December 31, 1996, compared to $2,473,889 for the year ended December 31, 1995, an increase of $259,577, or 10.49%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $995,515 for the year ended December 31, 1996, compared to $1,015,220 for the year ended December 31, 1995, a decrease of $19,705 or 1.94%. Management expenses totaled $125,608 for the year ended December 31, 1996, compared to $119,484 for the year ended December 31, 1995, an increase of $6,124, or 5.13%. The increase resulted from increased revenues, as management fees are calculated based on a percentage of revenues . General and Administrative Expenses General and administrative expenses totaled $232,301 for the year ended December 31, 1996 compared to $144,085 for the year ended December 31, 1995, an increase of $88,216 or 61.22%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $558,076 for the year ended December 31, 1996, compared to $0 for the year ended December 31, 1995, an increase of $558,076, or 100%. The increase is due to obtaining a mortgage loan against the property. Liquidity and Capital Resources As of June 30, 1998, your partnership had $736,850 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-75 1678 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. The general partner of your partnership is 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 in connection with your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct by such person. However, neither the general partner nor any affiliate will be indemnified for any loss, damage or cost resulting from the violation of any Federal or state securities laws in connection with the sale of units unless (i) there has been a successful adjudication on the merits of each count involving the securities law violations, (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or (ii) or court of competent jurisdiction approves a settlement of such claims. In such claim for indemnification for Federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect of the issue of indemnification for securities law violations. Any such indemnity provided shall be paid, from and only to the extent of, partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 6,400.00 1995........................................................ 4,475.00 1996........................................................ 55,037.50 1997........................................................ 1,400.00 1998 (through June 30)...................................... 0.00
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale S-76 1679 transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP AIMCO currently owns an 11.40% limited partnership interest in your partnership. Except as described above, neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $30,388 1995........................................................ 31,908 1996........................................................ 30,712 1997........................................................ 32,901 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995............................................ $119,485 1996............................................ 125,608 1997............................................ 129,884 1998 (through June 30).......................... 68,056
If the offer had been made in such prior periods, there would not have been any material difference in the compensation and distributions that would have been paid to the general partner of your partnership, or the company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-77 1680 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 DFW Residential Investors Limited Partnership at December 31, 1997, 1996, 1995 and 1994, and for the years then ended, appearing in this Prospectus Supplement have been audited by Reznick Fedder & Silverman, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-78 1681 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statement of Operations for the six months ended June 30, 1998 (unaudited)................................. F-3 Condensed Statement of Cash Flows for the six months ended June 30, 1998 (unaudited)................................. F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Income for the years ended December 31, 1997 and 1996.................................................. F-9 Statements of Partners' Capital for the years ended December 31, 1997 and 1996......................................... F-10 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-11 Notes to Financial Statements............................... F-12 Independent Auditors' Report................................ F-16 Balance Sheets as of December 31, 1995 and 1994............. F-17 Statements of Income for the years ended December 31, 1995 and 1994.................................................. F-18 Statements of Partners' Capital for the years ended December 31, 1995 and 1994......................................... F-19 Statements of Cash Flows for the years ended December 31, 1995 and 1994............................................. F-20 Notes to Financial Statements............................... F-21
F-1 1682 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 736,850 Receivables and Deposits.................................... 293,887 Other Assets................................................ 747,449 Investment Property Land...................................................... 1,718,142 Building and related property............................. 10,249,350 ----------- 11,967,492 Less: Accumulated depreciation............................ (2,847,235) 9,120,257 ----------- ----------- Total Assets:..................................... 10,898,443 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 21,265 Other Accrued Liabilities................................... 53,871 Property Taxes Payable...................................... 149,731 Tenant Security Deposits.................................... 44,793 Notes Payable............................................... 7,058,663 Partners' Capital........................................... 3,570,120 ----------- Total Liabilities and Partners' Capital........... 10,898,443 ===========
F-2 1683 DFW RESIDENTIAL LIMITED PARTNERSHIP CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Revenues: Rental Income............................................... $1,319,380 Other Income................................................ 51,628 ---------- Total Revenues:................................... 1,371,008 Expenses: Operating Expenses.......................................... 512,830 General and Administrative Expenses......................... 68,056 Depreciation Expense........................................ 225,242 Interest Expense............................................ 302,058 Property Tax Expense........................................ 155,383 ---------- Total Expenses:................................... 1,263,569 ---------- Net Income........................................ $ 107,439 ==========
F-3 1684 DFW RESIDENTIAL LIMITED PARTNERSHIP CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Operating Activities: Net Income (loss)......................................... $ 107,439 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization............................. 257,436 Changes in accounts: Receivables and deposits and other assets.............. 135,212 Accounts Payable and accrued expenses.................. (212,770) --------- Net cash provided by (used in) operating activities........................................ 287,317 --------- Investing Activities Property improvements and replacements.................... (37,198) --------- Net cash provided by (used in) investing activities....... (37,198) --------- Financing Activities Payments on mortgage...................................... (54,584) --------- Net cash provided by (used in) financing activities....... (54,584) --------- Net increase (decrease) in cash and cash equivalents....................................... 195,535 Cash and cash equivalents at beginning of year.... 541,315 --------- Cash and cash equivalents at end of period........ $ 736,850 =========
F-4 1685 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of DFW Residential Investors Limited Partnership as of June 30, 1998 and for the six months then ended have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 1686 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 1997 AND 1996 F-6 1687 INDEPENDENT AUDITORS' REPORT To the Partners of DFW Residential Investors Limited Partnership We have audited the accompanying balance sheets of DFW Residential Investors Limited Partnership as of December 31, 1997 and 1996, and the related statements of income, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DFW Residential Investors Limited Partnership as of December 31, 1997 and 1996, and the results of its operations, changes in partners' capital and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ REZNICK FEDDER & SILVERMAN Bethesda, Maryland February 10, 1998 F-7 1688 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, ASSETS
1997 1996 ----------- ----------- Investment in real estate Land...................................................... $ 1,718,142 $ 1,718,142 Buildings, improvement and personal property, net of accumulated depreciation of $2,621,993 and $2,171,510............................................. 7,590,159 7,845,926 ----------- ----------- 9,308,301 9,564,068 ----------- ----------- Other assets Cash and cash equivalents................................. 472,502 291,282 Tenant security deposits -- funded........................ 68,813 66,619 Other deposit accounts, prepaid and other receivables..... 15,056 79,705 Mortgage escrow deposits.................................. 420,927 487,263 Deferred costs, net of accumulated amortization of $301,003 and $236,615.................................. 772,759 837,147 ----------- ----------- Total assets...................................... $11,058,358 $11,326,084 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities applicable to investment in rental property Mortgages payable......................................... $ 7,113,247 $ 7,225,442 Other liabilities Accounts payable.......................................... 48,346 157,059 Accrued real estate taxes................................. 285,201 274,804 Accrued interest payable -- mortgage...................... 45,128 -- Rent deferred credits..................................... 1,402 -- Accrued expenses and other liabilities.................... 51,971 23,330 Security deposits......................................... 50,382 61,686 ----------- ----------- Total liabilities................................. 7,595,677 7,742,321 Partners' capital........................................... 3,462,681 3,583,763 ----------- ----------- Total liabilities and partners' capital........... $11,058,358 $11,326,084 =========== ===========
See notes to financial statements F-8 1689 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP STATEMENTS OF INCOME YEAR ENDED DECEMBER 31,
1997 1996 ---------- ---------- Revenue Rental.................................................... $2,618,642 $2,544,733 Interest.................................................. 19,478 22,819 Other..................................................... 50,628 165,914 ---------- ---------- Total revenue..................................... 2,688,748 2,733,466 ---------- ---------- Expenses Leasing................................................... 60,096 59,010 General and administrative................................ 287,873 232,301 Management fees........................................... 129,884 125,608 Utilities................................................. 192,614 209,727 Repairs and maintenance................................... 306,379 312,036 Painting and decorating................................... 80,549 70,667 Insurance................................................. 46,271 49,762 Taxes..................................................... 358,751 350,529 ---------- ---------- Total operating expenses.......................... 1,462,417 1,409,640 ---------- ---------- Other expenses Interest expense -- mortgage.............................. 545,408 558,076 Partnership expenses...................................... 94,809 104,317 Depreciation.............................................. 450,483 401,097 Amortization.............................................. 64,388 64,388 ---------- ---------- Total other expenses.............................. 1,155,088 1,127,878 ---------- ---------- Total expenses.................................... 2,617,505 2,537,518 ---------- ---------- Net income.................................................. $ 71,243 $ 195,948 ========== ========== Net income allocated to general partner..................... $ 712 $ 1,959 ========== ========== Net income allocated to limited partner..................... $ 70,531 $ 193,989 ========== ==========
See notes to financial statements F-9 1690 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1997 AND 1996
LIMITED TOTAL GENERAL PARTNER UNIT PARTNERS' PARTNER HOLDERS CAPITAL --------- ------------ ----------- Balance, December 31, 1995............................. $(417,427) $11,372,428 $10,955,001 Distributions to partners.............................. (82,086) (7,485,100) (7,567,186) Net income............................................. 1,959 193,989 195,948 --------- ----------- ----------- Balance, December 31, 1996............................. (497,554) 4,081,317 3,583,763 Distributions to partners.............................. (1,924) (190,401) (192,325) Net income............................................. 712 70,531 71,243 --------- ----------- ----------- Balance, December 31, 1997............................. $(498,766) $ 3,961,447 $ 3,462,681 ========= =========== ===========
See notes to financial statements F-10 1691 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1997 1996 --------- ----------- Cash flows from operating activities Net income................................................ $ 71,243 $ 195,948 Adjustments to reconcile net income to net cash provided by operating activities Depreciation........................................... 450,483 401,097 Amortization........................................... 64,388 64,388 Changes in assets and liabilities Decrease (increase) in other deposits accounts, prepaid and other receivables....................... 64,649 (15,164) (Decrease) increase in accounts payable.............. (108,713) 17,365 Increase in accrued real estate taxes................ 10,397 274,804 Decrease in security deposits........................ (13,498) (4,119) (Decrease) increase in accrued expenses and other liabilities......................................... 28,641 (5,748) Decrease (increase) in mortgage escrow deposits...... 66,336 (293,291) Increase in accrued interest payable -- mortgage..... 45,128 -- Increase in rent deferred credits.................... 1,402 -- --------- ----------- Net cash provided by operating activities......... 680,456 635,280 --------- ----------- Cash flows from investing activities Investment in real estate................................. (194,716) (345,541) --------- ----------- Net cash used in investing activities............. (194,716) (345,541) --------- ----------- Cash flows from financing activities Distributions to partners................................. (192,325) (7,567,186) Mortgage principal payments............................... (112,195) (93,073) Increase in deferred costs................................ -- (79,946) --------- ----------- Net cash used in financing activities............. (304,520) (7,740,205) --------- ----------- Net increase (decrease) in cash and cash equivalents..................................... 181,220 (7,450,466) Cash and cash equivalents, beginning........................ 291,282 7,741,748 --------- ----------- Cash and cash equivalents, ending........................... $ 472,502 $ 291,282 ========= =========== Cash paid during the year for interest...................... $ 512,699 $ 558,076 ========= ===========
See notes to financial statements F-11 1692 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DFW Residential Investors Limited Partnership (the "Partnership"), a limited partnership, was formed on January 11, 1990 under the laws of the State of Delaware for the purposes of acquiring, renovating, operating and otherwise dealing with certain residential apartments located in the Dallas, Texas, metropolitan area. The Partnership will terminate on December 31, 2040 or earlier upon the occurrence of certain events specified in the partnership agreement. The general partner of the Partnership is Winthrop Financial Associates, A Limited Partnership, a Maryland limited partnership ("WFA"). WFC Realty Co., Inc., a Massachusetts Corporation ("WFC Realty"), a wholly-owned subsidiary of WFA, was the initial limited partner of the Partnership and withdrew as a limited partner upon the first admission of investors. The Partnership sold 136 limited partnership units at $100,000 per unit. Basis of Accounting The accompanying financial statements have been prepared on the accrual basis in accordance with generally accepted accounting principles. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Investment in Real Estate Real estate is carried at cost. The Partnership provides for depreciation of buildings, improvements and personal property on the straight-line method over their estimated useful lives for financial reporting purposes. For income tax purposes, accelerated methods and lives are used. Deferred Costs Deferred costs are capitalized and amortized using the straight-line method over the term of the related agreement. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Partnership and tenants of the property are operating leases. Income Taxes No provision will be made for federal, state or local income taxes in the financial statements of the Partnership. Partners will be required to report on their tax returns their allocable shares of taxable income, gains, losses, deductions and credits of the Partnership. Cash Equivalents For purposes of the statement of cash flows, the Partnership considers all highly liquid investments with maturities of less than three months to be cash equivalents. F-12 1693 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain reclassifications have been made in the accompanying financial statements for 1996 in order to conform to the current year presentation. NOTE B -- ACQUISITION OF THE PROPERTIES The Partnership acquired two separate residential apartment complexes (the "Properties") in 1990 for an aggregate purchase price of $9,624,448. The purchase represents an aggregate of 405 market-rate rental apartments in the Dallas, Texas, metropolitan area. On January 12, 1990, the Partnership acquired The Hunt Club Apartments for $5,351,851 and, on April 5, 1990, the Partnership acquired Riverbend Apartments for $4,272,597. Both purchases were financed by a loan from W.F.A., which was repaid during 1993. NOTE C -- MORTGAGES PAYABLE On December 28, 1995, the Partnership obtained two mortgage loans from the same lender in the aggregate amount of $7,318,515, and they are collateralized by deeds of trust on the rental properties. The notes bear interest at a rate of 7.61%. Principal and interest are payable by the Partnership in monthly installments of $54,608. A balloon payment of approximately $6,434,516 and the accrued interest is payable in full on December 29, 2002. Under agreements with the mortgage lender, the Partnership is required to make monthly escrow deposits for taxes and insurance. The liability of the Partnership under the mortgage notes is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgages payable over each of the next five years are as follows:
DECEMBER 31, ------------ 1998.................................................... $117,385 1999.................................................... 126,636 2000.................................................... 136,617 2001.................................................... 147,906 2002.................................................... 159,561
NOTE D -- RELATED PARTY TRANSACTIONS The Partnership has incurred charges and commitments to companies affiliated with the general partner. Related party transactions with WFA and its affiliates include the following: The Properties were managed by Winthrop Management through October 27, 1997, an affiliate of the general partner. Pursuant to the management agreement the operating partnerships paid Winthrop a 5% management fee based on gross rental collections of the Properties. The management fees for the years ended December 31, 1997 and 1996 amounted to $107,891 and $125,608, respectively. On October 28, 1997, the Partnership terminated Winthrop Management as the managing agent and appointed Insignia Residential Group of Texas, Inc. ("Insignia") as the management agent (see note F to the financial statements). The current management agreement provides for a property management fee equal to 5% of the gross operating revenue generated by the Properties. Fees of $21,993 were charged to operations for the year ended December 31, 1997. F-13 1694 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Included in partnership expenses is $5,822 of costs reimbursements and $6,588 of investor service fees charged to operations for the two months ended December 31, 1997. The amounts are payable to an affiliate of the general partner. The Partnership paid an affiliate of WFA administration and investor service fees. Included in partnership expenses are fees of $20,491 and $30,712 that were charged to operations for the years ended December 31, 1997 and 1996, respectively. During 1996, the Partnership paid an affiliate of the general partner a financing fee in the amount of $79,946. NOTE E -- ALLOCATION OF INCOME, LOSSES, AND CASH FLOW In accordance with the Partnership Agreement, losses and cash flow shall be allocated 99% to the limited partners and 1% to the general partner; income shall be allocated to the partners in proportion to the cash available for distribution to the partners. If there is no such cash available for distribution, income will be allocated 95% to the limited partners and 5% to the general partner. NOTE F -- OTHER INFORMATION On October 28, 1997, Insignia Financial Group acquired 100% of the class B stock of First Winthrop Corporation, an affiliate of the general partner. F-14 1695 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 [WINGHROP LOGO] F-15 1696 INDEPENDENT AUDITORS' REPORT To the Partners of DFW Residential Investors Limited Partnership We have audited the accompanying balance sheets of DFW Residential Investors Limited Partnership as of December 31, 1995 and 1994, and the related statements of income, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DFW Residential Investors Limited Partnership as of December 31, 1995 and 1994, and the results of its operations, changes in partners' capital and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ REZNICK FEDDER & SILVERMAN Bethesda, Maryland January 26, 1996 F-16 1697 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP BALANCE SHEETS AS OF DECEMBER 31, ASSETS
1995 1994 ----------- ----------- Investment in Real Estate Land...................................................... $ 1,718,142 $ 1,718,142 Buildings and improvements, net of accumulated depreciation of $1,770,413 and $1,422,917.............. 7,901,482 7,988,266 ----------- ----------- 9,619,624 9,706,408 Other Assets Cash and cash equivalents................................. 7,741,748 837,488 Tenant security deposits -- funded........................ 61,473 58,838 Other deposit accounts, prepaids and other receivables.... 64,541 27,397 Mortgage escrow deposits.................................. 193,972 -- Deferred costs, net of accumulated amortization of $397,654 and $363,823.................................. 821,589 697,404 ----------- ----------- Total assets...................................... $18,502,947 $11,327,535 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities Applicable to Investment in Real Estate Mortgages payable......................................... $ 7,318,515 $ -- Other Liabilities Accounts payable.......................................... 139,694 128,904 Accrued real estate taxes................................. -- 239,773 Security deposits......................................... 60,659 55,679 Accrued expenses and other liabilities.................... 29,078 20,944 ----------- ----------- Total liabilities................................. 7,547,946 445,300 ----------- ----------- Partners' Capital Limited partners'......................................... 11,372,428 11,302,108 General partner........................................... (417,427) (419,873) ----------- ----------- 10,955,001 10,882,235 ----------- ----------- Total Liabilities and Partners' Capital........... $18,502,947 $11,327,535 =========== ===========
See notes to Financial Statements. F-17 1698 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP STATEMENTS OF INCOME YEAR ENDED DECEMBER 31,
1995 1994 ---------- ---------- Revenue Rental.................................................... $2,367,720 $2,242,813 Interest.................................................. 45,928 31,732 Other..................................................... 60,241 47,802 ---------- ---------- 2,473,889 2,322,347 ---------- ---------- Expenses Leasing................................................... 61,411 58,299 General and Administrative................................ 144,085 128,563 Management fees........................................... 151,402 143,878 Utilities................................................. 213,615 214,413 Repairs and Maintenance................................... 296,886 245,862 Janitorial................................................ 33,693 58,461 Painting and Decorating................................... 81,097 74,210 Insurance................................................. 108,783 95,190 Taxes..................................................... 281,310 265,962 ---------- ---------- Total operating expenses.......................... 1,372,282 1,284,838 Other Expenses Partnership expenses...................................... 34,502 33,349 Depreciation.............................................. 347,496 323,128 Amortization.............................................. 33,831 40,702 ---------- ---------- Total expenses.................................... 1,788,111 1,682,017 ---------- ---------- Net income.................................................. $ 685,778 $ 640,330 ========== ========== Net income allocated, to General Partner.................... $ 6,858 $ 6,403 ========== ========== Net income allocated, to Limited Partners................... $ 678,920 $ 633,927 ========== ==========
See notes to Financial Statements. F-18 1699 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1995 AND 1994
GENERAL LIMITED PARTNER PARTNERS TOTAL --------- ----------- ----------- Balance, December 31, 1993............................. $(415,170) $11,538,581 $11,123,411 Distributions.......................................... (11,106) (870,400) (881,506) Net Income............................................. 6,403 633,927 640,330 --------- ----------- ----------- Balance, December 31, 1994............................. (419,873) 11,302,108 10,882,235 Distributions.......................................... (4,412) (608,600) (613,012) Net Income............................................. 6,858 678,920 685,778 --------- ----------- ----------- Balance, December 31, 1995............................. $(417,427) $11,372,428 $10,955,001 ========= =========== ===========
See notes to Financial Statements. F-19 1700 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1995 1994 ---------- ---------- Cash flows from operating activities Net income................................................ $ 685,778 $ 640,330 Adjustments to reconcile net income to net cash provided by operating activities Depreciation........................................... 347,496 323,128 Amortization........................................... 33,831 40,702 Changes in assets and liabilities Increase in deposit accounts, prepaids and other receivables......................................... (39,779) (6,045) Increase in accounts payable......................... 10,790 119,969 (Decrease) increase in accrued real estate taxes..... (239,773) 36,569 Increase (decrease) in security deposits............. 4,980 (239) Increase (decrease) in accrued expenses and other liabilities......................................... 8,134 (115,926) Increase in deferred costs........................... (158,016) -- Increase in mortgage escrow deposits................. (193,972) -- ---------- ---------- Net cash provided by operating activities......... 459,469 1,038,488 ---------- ---------- Cash flows from investing activities Improvements to properties................................ (260,712) (218,122) ---------- ---------- Net cash used in investing activities............. (260,712) (218,122) ---------- ---------- Cash flows from financing activities Proceeds from mortgage loans.............................. 7,318,515 -- Distributions............................................. (613,012) (881,506) Decrease in due to affiliate.............................. -- (1,315) ---------- ---------- Net cash provided by (used in) financing activities...................................... 6,705,503 (882,821) ---------- ---------- Net increase (decrease) in cash and cash equivalents..................................... 6,904,260 (62,455) Cash and cash equivalents, beginning...................... 837,488 899,943 ---------- ---------- Cash and cash equivalents, ending......................... $7,741,748 $ 837,488 ========== ========== Cash paid during the year for interest....................
See notes to Financial Statements. F-20 1701 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DFW Residential Investors Limited Partnership (the "Partnership"), a limited partnership, was formed on January 11, 1990 under the laws of the State of Delaware for the purposes of acquiring, renovating, operating and otherwise dealing with certain residential apartments located in the Dallas, Texas metropolitan area. The Partnership will terminate on December 31, 2040 or earlier upon the occurrence of certain events specified in the Partnership Agreement. The general partner of the Partnership is Winthrop Financial Associates, A Limited Partnership, a Maryland limited partnership ("WFA"). WFC Realty Co., Inc., a Massachusetts Corporation ("WFC Realty"), a wholly-owned subsidiary of WFA, was the initial limited partner of the Partnership and withdrew as a limited partner upon the first admission of investors. The partnership sold 136 limited partnership units at $100,000 per unit. Basis of Accounting The accompanying financial statements have been prepared on the accrual basis in accordance with generally accepted accounting principles. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Investment in Rental Property Real estate is carried at cost. The Partnership provides for depreciation of buildings and improvements on the straight-line method over their estimated useful lives for financial reporters purposes. For income tax purposes, accelerated methods and lives are used. Deferred Costs Deferred costs are capitalized and amortized using the straight-line method over the term of the related agreement as discussed in Note F. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the partnership and tenants of the property are operating leases. Income Taxes No provision will be made for federal, state or local income taxes in the financial statements of the Partnership. Partners will be required to report on their tax returns their allocable shares of taxable income, gains, losses, deductions and credits of the Partnership. F-21 1702 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents For purposes of the statement of cash flows, the partnership considers all highly liquid investments consisting of a money market fund to be cash equivalents. The carrying amount of $842,997 approximates fair value because of the short maturity of this instrument. NOTE B -- ACQUISITION OF THE PROPERTIES The Partnership acquired two separate residential apartment complexes (the "Properties") in 1990 for an aggregate purchase price of $9,624,448. The purchase represents an aggregate of 405 market-rate rental apartments in the Dallas, Texas metropolitan area. On January 12, 1990, the Partnership acquired The Hunt Club Apartments for $5,351,851 and on April 5, 1990 the Partnership acquired Riverbend Apartments for $4,272,597. Both purchases were financed by a loan from WFA, which was repaid during 1993. NOTE C -- MORTGAGES PAYABLE On December 28, 1995, the partnership obtained two mortgage loans from the same lender in the aggregate amount of $7,318,515 and are collateralized by deeds of trust on the rental properties. The notes bear interest at a rate of 7.61%. Principal and interest are payable by the partnership in monthly installments of $54,608. A balloon payment of approximately $6,434,516 and the accrued interest is payable in full on December 29, 2002. Under agreements with the mortgage lender, the partnership is required to make monthly escrow deposits for taxes and insurance. The liability of the partnership under the mortgage notes are limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. The carrying amount of the partnerships long term debt approximates fair value. Aggregate annual maturities of the mortgages payable over each of the next five years are as follows:
DECEMBER 31, ------------ 1996................................................... $ 88,167 1997................................................... 108,810 1998................................................... 117,385 1999................................................... 126,636 2000................................................... 136,617
NOTE D -- DUE TO AFFILIATE Certain costs in connection with the acquisition of the Properties were paid by WFA in advance of the syndication. WFA was reimbursed for such costs upon the completion of the syndication. The remaining balance was paid during 1994. NOTE E -- RELATED PARTY TRANSACTIONS The Partnership has incurred charges and commitments to companies affiliated with the general partner. Related party transactions with WFA and its affiliates include the following: The Partnership pays to an affiliate of WFA an annual property management fee equal to 5% of gross operating revenues for the properties. Fees of $119,494 and $113,490 were charged to operations for the years ended December 31, 1995 and 1994, respectively. F-22 1703 DFW RESIDENTIAL INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Partnership pays WFA an annual administration and investor service fee of $25,000. This fee is increased 5% annually commencing in 1991. Fees of $31,908 and $30,388 were charged to operations for the years ended December 31, 1995 and 1994, respectively. NOTE F -- DEFERRED COSTS The following is a summary of the deferred costs at December 31, 1995 and 1994:
PERIOD 1995 1994 ---------- ---------- ---------- Organization costs............................... 5 Years $ 51,547 $ 51,547 Surety fee....................................... 2.33 Years 173,880 173,880 Acquisition fee.................................. 27.5 Years 835,800 835,800 Mortgage loan costs.............................. 7 Years 158,016 -- ---------- ---------- 1,219,243 1,061,227 Less: Accumulated Amortization................... 397,654 363,823 ---------- ---------- $ 821,589 $ 697,404 ========== ==========
NOTE G -- ALLOCATION OF INCOME, LOSSES, AND CASH FLOW In accordance with the Partnership Agreement, losses and cash flow shall be allocated 99% to the limited partners and 1% to the general partner; income shall be allocated to the partners in proportion to the cash available for distribution to the partners. If there is no such cash available for distribution, income will be allocated 95% to the limited partners and 5% to the general partner. NOTE H -- CONCENTRATION OF CREDIT RISK The partnership maintains its cash balances in two banks. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000. As of December 31, 1995 and 1994, the uninsured portion of the cash balances held in one of the banks was $6,875,011 and $822,795, respectively. NOTE I -- SUBSEQUENT EVENT On January 3, 1996, the partnership distributed $7,398,400 to the investor limited partners as a return of capital on their investment. F-23 1704 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 1705 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 1706 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 September , 1998 A-3 1707 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES, 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 1708 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-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 Four Quarters Habitat Apartments Associates, 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-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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-58 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 1709
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership............. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76
PAGE ---- Distributions and Transfers of Units......... S-76 Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
ii 1710 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 Four Quarters Habitat Apartments Associates, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 1711 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 1712 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 $0 per unit 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). 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 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. 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 S-3 1713 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 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 consideration is fair. However, your units are not listed on any national securities exchange nor quoted on the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 1714 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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. 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-5 1715 (This page intentionally left blank) S-6 1716 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. 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. 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 5 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. 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 S-7 1717 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. 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. Although your partnership did not make any distributions in 1998, it might make distributions in the future. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 1718 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 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 S-9 1719 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 1720 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, 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. 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 S-11 1721 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners or from other sources. 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 S-12 1722 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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). Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 1723 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 1724 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 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 S-15 1725 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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. S-16 1726 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 1727 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 is not subject to such limitations. 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives 28.58% of the remaining Cash Flow after distributions of 12% per annum of each limited partner's capital contribution has been made to each limited partner and may receive reimbursement for expenses generated in its capacity as general partner from your partnership. The property manager received management fees of $57,825 in 1996, $57,535 in 1997 and $27,845 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 Your Partnership and its Property. Four Quarters Habitat Apartments Associates, Ltd. is a Florida limited partnership which was formed on May 11, 1983 for the purpose of owning and operating a single S-18 1728 apartment property located in Miami, Florida, known as "Four Quarters Habitat". In 1983, it completed a private placement of units that raised net proceeds of approximately $8,550,000. Four Quarters Habitat consists of 336 apartment units. Your partnership has no employees. Property Management. Since December 1993, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2030, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $10,636,937, payable to LP Commercial Conduit Mfg. Trust, which bears interest at a rate of 9.84%. The mortgage debt is due in October 2001. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1729 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, 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 1730
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) 23,764 14,453 12,513 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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 1731 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 1732
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 1733 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)..................................... $ 10,579 $(38,135) 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........... 3,877 7,752 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............................ 60,297 104,471 Interest on convertible debentures.................... (5,012) (10,003) Preferred unit distributions.......................... (15,107) (30,214) -------- -------- Funds from operations................................. $121,674 $170,742 ======== ========
S-24 1734 SUMMARY FINANCIAL INFORMATION OF FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES, LTD. The summary financial information of Four Quarters Habitat Apartments Associates, Ltd. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Four Quarters Habitat Apartments Associates, Ltd. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on 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 of Your Partnership" included herein. See "Index to Financial Statements." FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES, LTD.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... $ 1,421,584 $ 1,400,602 $ 2,919,682 $ 2,903,134 $ 2,868,355 $ 3,044,719 $ 0 Net Income/(Loss)............ (227,385) (357,532) (619,890) (613,241) (473,614) (239,627) 0 BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... 3,169,653 3,809,551 3,508,749 4,068,757 4,590,045 4,737,381 5,502,447 Total Assets................. $ 5,057,511 $ 5,740,883 $ 5,212,553 $ 5,863,613 $ 6,577,097 $ 7,248,823 $ 8,075,511 Mortgage Notes Payable, including Accrued Interest................... 10,680,719 10,762,939 10,722,392 10,806,569 10,876,801 10,944,649 9,831,725 Partners' Capital/(Deficit).......... (6,437,176) (5,947,433) (6,209,791) (5,589,901) (4,976,660) (4,503,046) (4,263,419)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $0
S-25 1735 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. 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 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 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, 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 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. S-26 1736 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 Code. 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 therefore 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 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. 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 S-27 1737 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25, and the 1998 distributions of $0 with respect to your units, 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, Moody's Investors Service revised its outlook for the ratings of AIMCO to negative from stable 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 S-28 1738 AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs. Moody's assigned a "ba3" rating to the proposed Series I Preferred Stock 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 levels of encumbered properties and material investments in loans to highly leveraged partnerships in which AIMCO owns a general partnership interest. MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 levels 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. S-29 1739 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent the limited partners holding of at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners or from other sources. 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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 S-30 1740 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 OP Units rank equal to six other outstanding classes of Partnership Preferred Units. Your Partnership has not paid any distributions on your units since the inception of your partnership. - 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). Your Partnership has not paid any distributions on your units since the inception of your partnership. 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 1741 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 1742 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 1743 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. 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. S-34 1744 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." 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. 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. S-35 1745 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, (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 9:00 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 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, Denver, Colorado time. S-36 1746 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 1747 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. 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 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 S-38 1748 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 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 S-39 1749 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; (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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 1750 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. 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. 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-41 1751 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-42 1752 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 payment. 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 OP Units and any such S-43 1753 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-44 1754 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-45 1755 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-46 1756 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-47 1757 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-48 1758 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-49 1759 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 1760 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-51 1761 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 1762 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value, 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-53 1763 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 1764 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 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, a third party expert, 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 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions of $2.25 with respect to the Common OP Units and the 1998 distributions of $0.00 with respect to your units, distributions with respect to the Preferred OP Units and Common OP Units being offered 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 S-55 1765 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................................ Not available Estimated Liquidation Proceeds............................ $
S-56 1766 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. 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-1 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-57 1767 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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 September 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 S-58 1768 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 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 property was 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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-59 1769 the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property 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 property 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 property 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'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-1. 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 $9,000 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-60 1770 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 Florida law for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Four Quarters Habitat. 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 2030. 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 manage, operate, rent lease and repair your conduct any business that may be lawfully conducted by partnership's property. Subject to restrictions a limited partnership organized pursuant to the contained in your partnership's agreement of limited Delaware Revised Uniform Limited Partnership Act (as partnership, your partnership may perform any acts to amended from time to time, or any successor to such accomplish the foregoing including, without limitation, statute) (the "Delaware Limited Partnership Act"), borrowing funds 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-61 1771 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 by selling not more than 100 units for Partnership for any partnership purpose from time to cash and notes to selected persons who fulfill the time to the limited partners and to other persons, and requirements set for your partnership's agreement of to admit such other persons as additional limited limited partnership. The capital contribution need not partners, on terms and conditions and for such capital 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. contribution need not be equal for all OP Unitholders. 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 The general partner of your partnership and any of its The AIMCO Operating Partnership may lend or contribute affiliates may make loans to your partnership in such funds or other assets to its subsidiaries or other amounts as the general partner deems appropriate and persons in which it has an equity investment, and such necessary for the conduct of your partnership's persons may borrow funds from the AIMCO Operating business. Such loans will be upon such terms and for Partnership, on terms and conditions established in the such maturities as the managing general partner deems sole and absolute discretion of the general partner. To reasonable and the interest charged will be three the extent consistent with the business purpose of the percentage points above the interest rate being charged AIMCO Operating Partnership and the permitted to the prime customers of Harris Trust & Savings Bank activities of the general partner, the AIMCO Operating of Chicago. The partnership may contract with the Partnership may transfer assets to joint ventures, general partners and their affiliates provided that the limited liability companies, partnerships, required payments to be made by your partnership are at corporations, business trusts or other business competitive rates. 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 for partnership purposes and if restrictions on borrowings, and the general partner has security is required therefor, to pledge, mortgage or full power and authority to borrow money on behalf of subject to any other security device any portion of the AIMCO Operating Partnership. The AIMCO Operating your partnership assets and to enter into any surety Partnership has credit agreements that restrict, among arrangements with respect thereto. other things, its ability to incur indebtedness. See "Risk Factors -- Risks of Significant Indebtedness" in the accompanying Prospectus.
S-62 1772 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 limited partners and their representatives to with a statement of the purpose of such demand and at inspect and copy from the books of account and your such OP Unitholder's own expense, to obtain a current agreement and any amendments thereto at the principal list of the name and last known business, residence or place of business of your partnership during normal mailing address of the general partner and each other business hours upon reasonable notice. OP Unitholder.
Management Control The managing general partner of your partnership is All management powers over the business and affairs of solely responsible for the management of your the AIMCO Operating Partnership are vested in AIMCO-GP, partnership's business with all rights and powers Inc., which is the general partner. No OP Unitholder generally conferred by law or necessary, advisable or has any right to participate in or exercise control or consistent in connection therewith. The exercise of any management power over the business and affairs of the power conferred by this agreement on the managing AIMCO Operating Partnership. The OP Unitholders have general partner serves to bind your partnership. No the right to vote on certain matters described under limited partner may take part in the management, "Comparison of Ownership of Your Units and AIMCO OP conduct or control of the business of your partnership Units -- Voting Rights" below. The general partner may or have the power to sign for or bind your partnership not be removed by the OP Unitholders with or without to any agreement or document. 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 to your partnership or any limited partner partner is not liable to the AIMCO Operating for loss or damage that may be caused by any act Partnership for losses sustained, liabilities incurred performed by it or any failure to act if such acts were or benefits not derived as a result of errors in done in good faith and in accordance with sound judgment or mistakes of fact or law of any act or business practices and in accordance with the terms of omission if the general partner acted in good faith. your partnership's agreement of limited partnership. In The AIMCO Operating Partnership Agreement provides for addition, the general partner and its affiliates are indemnification of AIMCO, or any director or officer of entitled to indemnification by your partnership against AIMCO (in its capacity as the previous general partner any claim, loss, damage, liability, action or expense of the AIMCO Operating Partnership), the general sustained by it or them as a result of any act or partner, any officer or director of general partner or omission done in good faith and in accordance with the AIMCO Operating Partnership and such other persons sound business practices and in accordance with the as the general partner may designate from and against terms of your partnership's agreement of limited all losses, claims, damages, liabilities, joint or partnership, provided that such acts do not constitute several, expenses (including legal fees), fines, fraud, bad faith, breach of fiduciary duty, gross settlements and other amounts incurred in connection negligence or intentional misconduct. 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
S-63 1773 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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, a general partner of your partnership may has exclusive management power over the business and be removed for cause, exercisable upon written notice affairs of the AIMCO Operating Partnership. The general upon the written consent or affirmative vote of all of partner may not be removed as general partner of the the limited partners or, under certain circumstances, AIMCO Operating Partnership by the OP Unitholders with the limited partners owning 75% or more of the limited or without cause. Under the AIMCO Operating Partnership partnership units outstanding. If there are no Agreement, the general partner may, in its sole remaining general partners, all of the limited partners discretion, prevent a transferee of an OP Unit from or holders of 75% of more the limited partnership becoming a substituted limited partner pursuant to the units, under certain circumstances, may elect a AIMCO Operating Partnership Agreement. The general substitute general partner. A general partner may sell partner may exercise this right of approval to deter, up to 50% of its interest owned at the time of delay or hamper attempts by persons to acquire a formation with the consent of at least 51% of the controlling interest in the AIMCO Operating Partner- limited partners. A limited partner may not transfer ship. Additionally, the AIMCO Operating Partnership his interests in your partnership without the consent Agreement contains restrictions on the ability of OP 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 Amendments to your partnership's agreement of limited With the exception of certain circumstances set forth partnership may be proposed by the general partner of in the AIMCO Operating Partnership Agreement, whereby your partnership or by limited partners owning at least the general partner may, without the consent of the OP 10% of the then outstanding limited partnership Unitholders, amend the AIMCO Operating Partnership interests. Such amendments will be passed if within Agreement, amendments to the AIMCO Operating ninety days of submission to the limited partners, the Partnership Agreement require the consent of the limited partners owning 51% of the outstanding units holders of a majority of the outstanding Common OP consent. However, no amendment may reduce the rights or Units, excluding AIMCO and certain other limited interests or enlarge the obligations of the limited exclusions (a "Majority in Interest"). Amendments to partners. The general partner may amend your the AIMCO Operating Partnership Agreement may be partnership's agreement of limited partnership as proposed by the general partner or by holders of a required by law, admit limited partners or is necessary Majority in Interest. Following such proposal, the to effect changes which do not adversely affect the general partner will submit any proposed amendment to rights or increase the obligations of limited partners. the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives 28.58% of the remaining Cash Flow after capacity as general partner of the AIMCO Operating distributions of 12% per annum of each limited Partnership. In addition, the AIMCO Operating Part- partner's capital contribution has been made to each nership is responsible for all expenses incurred limited partner. Moreover, the general partner or relating to the AIMCO Operating Partnership's ownership certain affiliates may be entitled to compensation for of its assets and the operation of the AIMCO Operating additional services rendered. 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-64 1774 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 bound by or negligence, no OP Unitholder has personal liability for personally liable for any of the expenses, liabilities the AIMCO Operating Partnership's debts and or obligation of your partnership beyond the amount obligations, and liability of the OP Unitholders for contributed by the limited partner to the capital of the AIMCO Operating Partnership's debts and obligations your partnership, its notes for capital contributions is generally limited to the amount of their invest- to your partnership and the limited partner's share of ment in the AIMCO Operating Partnership. However, the undistributed profits of 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 Your partnership's agreement of limited partnership Unless otherwise provided for in the relevant provides that any partner or affiliate may engage in or partnership agreement, Delaware law generally requires possess an interest in other business ventures of any a general partner of a Delaware limited partnership to nature and description, including the acquisition, adhere to fiduciary duty standards under which it owes ownership, financing, leasing, operation, management, its limited partners the highest duties of good faith, syndication, brokerage, sale, construction and fairness and loyalty and which generally prohibit such development of real property, and neither your general partner from taking any action or engaging in partnership nor any other partners shall have any any transaction as to which it has a conflict of rights in or to such independent venture or the income interest. The AIMCO Operating Partnership Agreement or profits derived therefrom. Moreover, the general expressly authorizes the general partner to enter into, partner is not required to devote all of their time or on behalf of the AIMCO Operating Partnership, a right business efforts to the affairs of your partnership, of first opportunity arrangement and other conflict but they are required to devote so much time and avoidance agreements with various affiliates of the attention to your partnership as is reasonably AIMCO Operating Partnership and the general partner, on necessary and advisable to manage the affairs of your such terms as the general partner, in its sole and partnership to be the best advantage 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 1775 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, limited applicable law or in the AIMCO ship Agreement, the OP Unitholders partners have voting rights in Operating Partnership Agreement, have voting rights only with certain circumstances and are not the holders of the Preferred OP respect to certain limited matters deemed to take part in the control Units will have the same voting such as certain amendments and of your partnership by virtue of rights as holders of the Common OP termination of the AIMCO Operating their voting rights. If a court of Units. See "Description of OP Partnership Agreement and certain competent jurisdiction determines Units" in the accompanying transactions such as the or the opinion of counsel which is Prospectus. So long as any institution of bankruptcy reasonably satisfactory to the Preferred OP Units are outstand- proceedings, an assignment for the holders of 51% of the outstanding ing, in addition to any other vote benefit of creditors and certain units is obtained that the approval or consent of partners required by transfers by the general partner of of the following transactions by law or by the AIMCO Operating its interest in the AIMCO Operating less than all of Partnership Agree- Part-
S-66 1776 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS the limited partners will not be ment, the affirmative vote or nership or the admission of a deemed to be control of your consent of holders of at least 50% successor general partner. partnership by the limited of the outstanding Preferred OP partners, the holders of a majority Units will be necessary for Under the AIMCO Operating Partner- of the then outstanding units may effecting any amendment of any of ship Agreement, the general partner amend your partnership's agreement the provisions of the Partnership has the power to effect the of limited partnership and dissolve Unit Designation of the Preferred acquisition, sale, transfer, of your partnership. If the OP Units that materially and exchange or other disposition of foregoing conditions are satis- adversely affects the rights or any assets of the AIMCO Operating fied, the limited partners owning preferences of the holders of the Partnership (including, but not at least 75% of the outstanding Preferred OP Units. The creation or limited to, the exercise or grant units may also remove a general issuance of any class or series of of any conversion, option, partner and elect a substitute partnership units, including, privilege or subscription right or general partner in the event there without limitation, any partner- any other right available in is no remaining general partner. ship units that may have rights connection with any assets at any However, if such showing is not senior or superior to the Preferred time held by the AIMCO Operating made, all of the above issues will OP Units, shall not be deemed to Partnership) or the merger, require the approval of all of the materially adversely affect the consolidation, reorganization or limited partners. The holders of a rights or preferences of the other combination of the AIMCO majority of the then outstanding holders of Preferred OP Units. With Operating Partnership with or into must approve the sale of your respect to the exercise of the another entity, all without the partnership's property and the sale above described voting rights, each consent of the OP Unitholders. by the general partner of its Preferred OP Units shall have one general partner interests. (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating The last remaining general partner Partnership by an "event of may cause the dissolution of the withdrawal," as defined in the your partnership by retiring, Delaware Limited Partnership Act unless the limited partners owning (including, without limitation, more the 75% of the then bankruptcy), unless, within 90 days outstanding units elect to continue after the withdrawal, holders of a your partnership and elect a new "majority in interest," as defined general partner within sixty days in the Delaware Limited Partnership of the retirement. 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 general partner of your $ per Preferred OP Unit; tribute quarterly all, or such partnership annually distributes provided, however, that at any time portion as the general partner may substantially all of your partner- and from time to time on or after in its sole and absolute discretion ship's Cash Flow (as defined in the fifth anniversary of the issue determine, of Available Cash (as your partnership's agreement of date of the Preferred OP Units, the defined in the AIMCO Operating limited partnership) with each AIMCO Operating Partnership may Partnership Agreement) generated by partner receiving their pro rata adjust the annual distribution rate the AIMCO Operating Partnership share in accordance with their on the Preferred OP Units to the during such quarter to the general ownership of units. Such lower of (i) % plus the annual partner, the special limited distributions are made at interest rate then applicable to partner and the holders of Common convenient period intervals, not U.S. Treasury notes with a maturity OP Units on the record date less than quarterly, within sixty of five years, and (ii) the annual established by the general partner days after the close of the dividend rate on the most recently with respect to such quarter, in quarter. Any proceeds received from issued AIMCO non-convertible accordance with their respective the sale or refinancing of your preferred stock which ranks on a interests in the AIMCO Operating partnership's property is parity with its Class H Cumu- Partnership on such record date. distributed in accordance with your Holders of any other Pre- partnership's agreement of limited partnership. The dis-
S-67 1777 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tributions payable to the partners lative Preferred Stock. Such ferred OP Units issued in the are not fixed in amount and depend distributions will be cumulative future may have priority over the upon the operating results and net from the date of original issue. general partner, the special sales or refinancing proceeds Holders of Preferred OP Units will limited partner and holders of available from the disposition of not be entitled to receive any Common OP Units with respect to your partnership's assets. Your distributions in excess of distributions of Available Cash, partnership has not made cumulative distributions on the distributions upon liquidation or distributions in the past and is Preferred OP Units. No interest, or other distributions. See "Per Share not projected to make distributions sum of money in lieu of interest, and Per Unit Data" in the in 1998. 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 interests if the transferee is a Preferred OP Units and the OP Units. The AIMCO Operating Part- citizen and resident of the U.S., Preferred OP Units are not listed nership Agreement restricts the the transferor provides an opinion on any securities exchange. The transferability of the OP Units. that such transfer is made in Preferred OP Units are subject to Until the expiration of one year compliance with the securities law, restrictions on transfer as set from the date on which an OP the transferee makes the forth in the AIMCO Operating Unitholder acquired OP Units, representations required by your Partnership Agreement. subject to certain exceptions, such partnership's agreement of limited OP Unitholder may not transfer all partnership and the managing Pursuant to the AIMCO Operating or any portion of its OP Units to general partner consents, which Partnership Agreement, until the any transferee without the consent consent may be withheld in its sole expiration of one year from the of the general partner, which discretion and will be withheld if date on which a holder of Preferred consent may be withheld in its sole in the opinion of counsel, such OP Units acquired Preferred OP and absolute discretion. After the transfer would result in the ter- Units, subject to certain expiration of one year, such OP mination of your partnership for exceptions, such holder of Unitholder has the right to tax purposes. However, in order for Preferred OP Units may not transfer transfer all or any portion of its such transferee to be substituted all or any portion of its Pre- OP Units to any person, subject to for the transferor, in addition to ferred OP Units to any transferee the satisfaction of certain the foregoing requirements, a without the consent of the general conditions specified in the AIMCO written instrument evidencing the partner, which consent may be Operating Partnership Agreement, transfer must be duly executed and withheld in its sole and absolute including the general partner's acknowledged, the transfer fee must discretion. After the expiration of right of first refusal. See be paid, the general partner must one year, such holders of Preferred "Description of OP Units -- consent, which may be withheld in OP Units has the right to transfer Transfers and Withdrawals" in the its sole discretion and such other all or any portion of its Preferred accompanying Prospectus. requirements as are OP Units to any person, subject to the satisfaction of
S-68 1778 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS set forth in your partnership's certain conditions specified in the After the first anniversary of agreement of limited partnership AIMCO Operating Partnership Agree- becoming a holder of Common OP must be satisfied. ment, including the general Units, an OP Unitholder has the There are no redemption rights partner's right of first refusal. right, subject to the terms and associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 1779 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives 28.58% of the remaining Cash Flow after distributions of 12% per annum of each limited partner's capital contribution has been made to each limited partner and may receive reimbursement for expenses generated in its capacity as general partner from your partnership. The property manager received management fees of $57,825 in 1996, $57,535 in 1997 and $27,895 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's 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'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 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-70 1780 YOUR PARTNERSHIP GENERAL Four Quarters Habitat Apartments Associates, Ltd. is a Florida limited partnership which raised net proceeds of approximately $8,550,000 in 1983 through a private offering. The promoter for the private offering of your partnership was Van Kampen Merrit, Inc. Insignia acquired your partnership in December 1993. AIMCO acquired Insignia in October, 1998. There are currently a total of 100 limited partners of your partnership and a total of 98 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 11, 1983 for the purpose of owning and operating a single apartment property located in Miami, Florida, known as "Four Quarters Habitat." Your partnership's property consists of 336 apartment units. There are 80 one-bedroom apartments and 256 two-bedroom apartments. The total rentable square footage of your partnership's property is 364,480 square feet. Your partnership's property had an average occupancy rate of approximately 95.54% in 1996 and 95.54% in 1997. The average annual rent per apartment unit is approximately $8,357. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1993, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $57,825, $57,535 and $27,845, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2030 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 1781 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $10,636,937, payable to LP Commercial Conduit Mfg. Trust, which bears interest at a rate of 9.84%. The mortgage debt is due in October 2001. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. S-72 1782 SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. Below is selected financial information for Four Quarters Habitat Apartments Associates, Ltd. taken from the financial statements described above. See "Index to Financial Statements."
FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES, LTD. --------------------------------------------------------- JUNE 30, DECEMBER 31, --------------------------- --------------------------- 1998 1997 1997 1996 ------------ ------------ ------------ ------------ BALANCE SHEET DATA Cash and Cash Equivalents.... $ 267,159 $ 190,812 $ 145,164 $ 185,078 Land & Building.............. 19,523,510 19,328,724 19,445,263 19,170,587 Accumulated Depreciation..... (16,353,857) (15,519,173) (15,936,514) (15,101,830) Other Assets................. 1,620,699 1,740,520 1,558,640 1,609,778 ------------ ------------ ------------ ------------ Total Assets......... $ 5,057,511 $ 5,740,883 $ 5,212,553 $ 5,863,613 ============ ============ ============ ============ Mortgage & Accrued Interest................... 10,680,719 10,762,939 10,722,392 10,806,569 Other Liabilities............ 813,968 925,377 699,952 646,945 ------------ ------------ ------------ ------------ Total Liabilities.... $ 11,494,687 $ 11,688,316 $ 11,422,344 $ 11,453,514 ------------ ------------ ------------ ------------ Partners Capital (Deficit)... $ (6,437,176) $ (5,947,433) $ (6,209,791) $ (5,589,901) ============ ============ ============ ============ FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES, LTD. ------------------------------------------ DECEMBER 31, ------------------------------------------ 1995 1994 1993 ------------ ------------ ------------ BALANCE SHEET DATA Cash and Cash Equivalents.... $ 285,039 $ 405,330 $ 148,006 Land & Building.............. 18,879,297 18,248,520 18,248,520 Accumulated Depreciation..... (14,289,252) (13,511,139) (12,746,073) Other Assets................. 1,702,013 2,106,112 2,425,058 ------------ ------------ ------------ Total Assets......... $ 6,577,097 $ 7,248,823 $ 8,075,511 ============ ============ ============ Mortgage & Accrued Interest................... 10,876,801 10,944,649 9,831,725 Other Liabilities............ 676,956 807,220 2,507,205 ------------ ------------ ------------ Total Liabilities.... $ 11,553,757 $ 11,751,869 $ 12,338,930 ------------ ------------ ------------ Partners Capital (Deficit)... $ (4,976,660) $ (4,503,046) $ (4,263,419) ============ ============ ============
FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES, LTD. ---------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue......................... $1,380,464 $1,362,744 $2,839,946 $2,828,092 $2,778,104 $2,719,523 $ Other Income........................... 41,120 37,858 79,736 75,042 90,251 325,196 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue.................. $1,421,584 $1,400,602 $2,919,682 $2,903,134 $2,868,355 $3,044,719 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses..................... 419,971 523,748 1,115,970 1,084,787 996,378 969,368 General & Administrative............... 51,601 53,683 106,207 104,564 99,335 94,368 Depreciation........................... 417,343 417,343 834,685 812,578 778,113 765,066 Interest Expense....................... 582,061 586,894 1,142,575 1,177,112 1,190,753 1,129,207 Property Taxes......................... 177,993 176,466 340,135 337,334 277,390 326,337 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses................. $1,648,969 $1,758,134 $3,539,572 $3,516,375 $3,341,969 $3,284,346 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income............................. $ (227,385) $ (357,532) $ (619,890) $ (613,241) $ (473,614) $ (239,627) $ 0 ========== ========== ========== ========== ========== ========== ==========
S-73 1783 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized a net loss of $227,385 for the six months ended June 30, 1998, compared to a net loss of $357,532 for the six months ended June 30, 1997. The increase in net income of $130,147 was primarily the result of an increase in rental revenues and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,421,584 for the six months ended June 30, 1998, compared to $1,400,602 for the six months ended June 30, 1997, an increase of $20,982, or 1.50%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $419,971 for the six months ended June 30, 1998, compared to $523,748 for the six months ended June 30, 1997, an decrease of $103,777 or 19.81%. This decrease was primarily the result of a decrease in exterior maintenance costs. Management expenses totaled $58,243 for the six months ended June 30, 1998, compared to $57,223 for the six months ended June 30, 1997, an increase of $1,020, or 1.78%. General and Administrative Expenses General and administrative expenses totaled $51,601 for the six months ended June 30, 1998 compared to $53,683 for the six months ended June 30, 1997, a decrease of $2,082 or 3.88%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $582,061 for the six months ended June 30, 1998, compared to $586,894 for the six months ended June 30, 1997, a decrease of $4,833, or .82%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $619,890 for the year ended December 31, 1997, compared to a net loss of $613,241 for the year ended December 31, 1996, a decrease in net income of $6,649, or 1.08%. Revenues Rental and other property revenues from the partnership's property totaled $2,919,682 for the year ended December 31, 1997, compared to $2,903,134 for the year ended December 31, 1996, an increase of $16,548, or .57%. S-74 1784 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,115,970 for the year ended December 31, 1997, compared to $1,084,787 for the year ended December 31, 1996, an increase of $31,183 or 2.87%. Management expenses totaled $115,435 for the year ended December 31, 1997, compared to $116,020 for the year ended December 31, 1996, a decrease of $585, or 0.05%. General and Administrative Expenses General and administrative expenses totaled $106,207 for the year ended December 31, 1997 compared to $104,564 for the year ended December 31, 1996, an increase of $1,643 or 1.57%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,142,575 for the year ended December 31, 1997, compared to $1,177,112 for the year ended December 31, 1996, a decrease of $34,537, or 2.93%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $613,241 for the year ended December 31, 1996, compared to a net loss of $473,614 for the year ended December 31, 1995. The decrease in net income of $139,627 was primarily the result of an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,903,134 for the year ended December 31, 1996, compared to $2,868,355 for the year ended December 31, 1995, an increase of $34,779, or 1.21%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,084,787 for the year ended December 31, 1996, compared to $996,378 for the year ended December 31, 1995, an increase of $88,409 or 8.87%. This increase was primarily the result of an increase in property improvement costs. Management expenses totaled $116,020 for the year ended December 31, 1996, compared to $114,657 for the year ended December 31, 1995, a decrease of $1,363, or 1.19%. General and Administrative Expenses General and administrative expenses totaled $104,564 for the year ended December 31, 1996 compared to $99,335 for the year ended December 31, 1995, an increase of $5,229 or 5.26%. This increase is primarily due to an increase in professional fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,177,112 for the year ended December 31, 1996, compared to $1,190,753 for the year ended December 31, 1995, a decrease of $13,641, or 1.15%. S-75 1785 Liquidity and Capital Resources As of June 30, 1998, your partnership had $267,159 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 to your partnership or any limited partner for loss or damage that may be caused by any act performed by it or any failure to act if such acts were done in good faith and in accordance with sound business practices and in accordance with the terms of your partnership's agreement of limited 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 owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates are entitled to indemnification by your partnership against any claim, loss, damage, liability, action or expense sustained by it or them as a result of any act or omission done in good faith and in accordance with sound business practices and in accordance with the terms of your partnership's agreement of limited partnership, provided that such acts do not constitute fraud, bad faith, breach of fiduciary duty, gross negligence or intentional misconduct. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions Your partnership has paid no distributions in the last five years. The original cost per unit was $251,471. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions S-76 1786 (excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0.00% 0 1995......................... 0 0.00% 0 1996......................... 0 0.00% 0 1997......................... 0.5 1.41% 1 1998 (through June 30)....... 0 0.00% 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------- 1994........................................................ Not available 1995........................................................ Not available 1996........................................................ $ 40,143 1997........................................................ 40,872 1998 (through June 30)...................................... 21,294
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------- 1995........................................................ Not available 1996........................................................ $ 57,825 1997........................................................ $ 57,535 1998 (through June 30)...................................... $ 27,845
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 company paid to the property manager or AIMCO and its affiliates. S-77 1787 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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. S-78 1788 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (unaudited)............................................... F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Balance Sheets as of December 31, 1997 and 1996 (unaudited)............................................... F-6 Statements of Operations for the twelve months ended December 31, 1997, 1996 and 1995 (unaudited).............. F-7 Statements of Cash Flows for the twelve months ended December 31, 1997, 1996 and 1995 (unaudited).............. F-8
F-1 1789 FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 267,159 Receivables and Deposits.................................... 394,101 Investments................................................. 0 Restricted Escrows.......................................... 183,332 Other Assets................................................ 1,043,266 Investment Property: Land...................................................... $ 1,775,965 Building and related personal property.................... 17,747,545 ------------ 19,523,510 Less: Accumulated depreciation............................ (16,353,857) 3,169,653 ------------ ----------- Total Assets...................................... $ 5,057,511 =========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ 67,576 Other Accrued Liabilities................................... 461,771 Property Taxes Payable...................................... 177,993 Tenant Security Deposits.................................... 150,410 Notes Payable............................................... 10,636,937 Partners' (Deficit)......................................... (6,437,176) ----------- Total Liabilities and Partners' Deficit........... $ 5,057,511 ===========
F-2 1790 FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 ---------- ---------- Revenues: Rental Income............................................. $1,380,464 $1,362,744 Other Income.............................................. 41,120 37,858 ---------- ---------- Total Revenues.................................... 1,421,584 1,400,602 Expenses: Operating Expenses........................................ 419,971 523,748 General and Administrative Expenses....................... 51,601 53,683 Depreciation Expense...................................... 417,343 417,343 Interest Expense.......................................... 582,061 586,894 Property Tax Expense...................................... 177,993 176,466 ---------- ---------- Total Expenses.................................... 1,648,969 1,758,134 Net Loss.......................................... $ (227,385) $ (357,532) ========== ==========
F-3 1791 FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) JUNE 30, 1998 AND 1997
JUNE 30, JUNE 30, 1998 1997 --------- --------- Operating Activities: Net Income (loss)......................................... $(227,385) $(357,532) Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 456,863 457,805 Changes in accounts....................................... -- -- Receivables and deposits and other assets.............. (96,364) (168,135) Accounts Payable and accrued expenses.................. 114,016 272,585 --------- --------- Net cash provided by (used in) operating activities...................................... 247,130 204,723 --------- --------- Investing Activities: Property improvements and replacements.................... (78,246) (158,136) Net (increase)/decrease in restricted escrows............. (5,216) (3,070) --------- --------- Net cash provided by (used in) investing activities....... (83,462) (161,206) --------- --------- Financing Activities: -- -- Payments on mortgage...................................... (41,673) (37,783) -- -- --------- --------- Net cash provided by (used in) financing activities....... (41,673) (37,783) --------- --------- Net increase (decrease) in cash and cash equivalents...... 121,995 5,734 Cash and cash equivalents at beginning of year............ 145,164 185,078 --------- --------- Cash and cash equivalents at end of period................ $ 267,159 $ 190,812 ========= =========
F-4 1792 FOUR QUARTERS HABITAT APARTMENTS ASSOCIATES NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Four Quarters Habitat Apartments Associates, LTD. as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 1793 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES BALANCE SHEETS (UNAUDITED)
YEAR ENDED --------------------------- DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Assets: Cash and cash equivalents................................. $ 145,164 $ 185,078 Receivables and Deposits.................................. 306,025 268,729 Restricted Escrows........................................ 178,116 171,908 Syndication Costs......................................... 757,386 757,386 Other Assets.............................................. 317,112 411,754 Investment Property: Land................................................... 1,775,965 1,775,965 Building and related personal property................. 17,669,299 17,394,623 ------------ ------------ 19,445,264 19,170,588 Less: Accumulated depreciation............................ (15,936,514) (15,101,830) ------------ ------------ 3,508,750 4,068,758 Total Assets:..................................... $ 5,212,553 $ 5,863,613 ============ ============ Liabilities and Partners' Capital: Accounts payable.......................................... $ 125,301 $ 12,102 Other Accrued Liabilities................................. 453,736 483,210 Tenant Security Deposits.................................. 164,697 202,129 Notes Payable............................................. 10,678,610 10,756,073 Partners' Capital........................................... (6,209,791) (5,589,901) ------------ ------------ Total Liabilities and Partners' Capital........... $ 5,212,553 $ 5,863,613 ============ ============
F-6 1794 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES STATEMENTS OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, ------------------------------------ 1997 1996 1995 ---------- ---------- ---------- Revenues: Rental Income.......................................... $2,839,946 $2,828,092 $2,778,104 Other Income........................................... 79,736 75,042 90,251 ---------- ---------- ---------- Total Revenues................................. 2,919,682 2,903,134 2,868,355 Expenses: Operating Expenses..................................... 1,115,970 1,084,787 996,378 General and Administrative Expenses.................... 106,207 104,564 99,335 Depreciation Expense................................... 834,685 812,578 778,113 Interest Expense....................................... 1,142,575 1,177,112 1,190,753 Property Tax Expense................................... 340,135 337,334 277,390 ---------- ---------- ---------- Total Expenses................................. 3,539,572 3,516,375 3,341,969 ---------- ---------- ---------- Net Loss....................................... $ (619,890) $ (613,241) $ (473,614) ========== ========== ==========
F-7 1795 FOUR QUARTERS HABITAT APARTMENT ASSOCIATES STATEMENTS OF CASH FLOWS (UNAUDITED)
YEAR ENDED DECEMBER 31, --------------------------------- 1997 1996 1995 --------- --------- --------- Operating Activities: Net Income (loss)....................................... $(619,890) $(613,241) $(473,614) Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization........................ 834,685 812,578 778,113 Receivables and deposits and other assets.......... 57,346 31,556 592,695 Accounts Payable and accrued expenses.............. 46,293 20,485 (130,264) --------- --------- --------- Net cash provided by (used in) operating activities.................................... 318,434 251,378 766,930 --------- --------- --------- Investing Activities: Property improvements and replacements.................. (274,677) (291,291) (630,777) Net (increase)/decrease in restricted escrows........... (6,208) 60,680 (188,596) --------- --------- --------- Net cash provided by (used in) investing activities.................................... (280,885) (230,611) (819,373) --------- --------- --------- Financing Activities: Payments on mortgage.................................... (77,463) (120,728) (67,848) --------- --------- --------- Net cash provided by (used in) financing activities.................................... (77,463) (120,728) (67,848) --------- --------- --------- Net increase (decrease) in cash and cash equivalents................................... (39,914) (99,961) (120,291) Cash and cash equivalents at beginning of year............ 185,078 285,039 405,330 --------- --------- --------- Cash and cash equivalents at end of period................ $ 145,164 $ 185,078 $ 285,039 ========= ========= =========
F-8 1796 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 1797 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 1798 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 September , 1998 A-3 1799 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF GEORGETOWN OF COLUMBUS 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 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 1800 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-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-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 Georgetown of Columbus Associates, 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-29 Expected Benefits of the Offer............... S-30 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-35 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-36 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-41 General...................................... S-41 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 1801
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-76 Compensation Paid to the General Partner and its Affiliates............................. S-76 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-76 LEGAL MATTERS.................................. S-76 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 1802 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 Georgetown of Columbus Associates, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 the managing general partner (the "general partner") of your partnership 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 1803 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)............................... $ $ $ -- $ -- Third Quarter.......................... 41 30 15/16 -- -- 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 1804 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 $0 per unit 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). 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 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. 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 S-3 1805 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 1806 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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. 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: S-5 1807 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 1808 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. 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. 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 5 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. 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 S-7 1809 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. 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. Although your partnership did not make any distributions in 1998, it might make distributions in the future. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 1810 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 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 S-9 1811 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 1812 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, 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. 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 S-11 1813 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 1814 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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). Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 1815 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 1816 - 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 also pay all costs and expenses of printing and mailing this Prospectus Supplement 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 1817 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 own 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 S-16 1818 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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. Stanger did not analyze the fairness of the number of Tax-Deferral % Preferred OP Units or Tax-Deferral Common OP Units that we are offering for your units. 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 is not subject to such limitations. S-17 1819 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual fee of 1% of the gross collected income of your partnership's property for its services as general partner of your partnership and may receive reimbursement for expenses generated in that capacity from your partnership. The property manager received management fees of $51,864 in 1996, $55,922 in 1997 and $28,257 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 Your Partnership and its Property. Georgetown of Columbus Associates, L.P. is a Delaware limited partnership which was formed on October 5, 1983 for the purpose of owning and operating a single apartment property located in Columbus, Ohio, known as "Georgetown of Columbus Apartments." In 1983, it completed a private placement of units that raised net proceeds of approximately $2,500,000. Georgetown of Columbus Apartments consists of 150 apartment units. Your partnership has no employees. Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. 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 S-18 1820 of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2026, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,706,761, payable to FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $131,718, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1821 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 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 1822
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 1823 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 1824
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 1825 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 1826 SUMMARY FINANCIAL INFORMATION OF GEORGETOWN OF COLUMBUS ASSOCIATES, L.P. The summary financial information of Georgetown of Columbus Associates, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Georgetown of Columbus 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 of Your Partnership" included herein. See "Index to Financial Statements." GEORGETOWN OF COLUMBUS ASSOCIATES, L.P.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues................ $ 560,900 $ 550,891 $ 1,120,563 $ 1,045,905 $ 1,009,083 $ 987,619 $ 962,969 Net Income/(Loss)............. 73,309 80,920 55,874 (29,605) 19,691 27,974 (205,304) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation.... 1,483,164 1,507,223 1,512,016 1,538,955 1,553,835 1,592,329 1,618,676 Total Assets.................. 1,805,977 1,792,292 1,855,057 1,854,243 1,900,721 1,979,173 1,987,093 Mortgage Notes Payable, including Accrued Interest.................... 3,688,228 3,771,102 3,723,480 3,813,563 3,889,235 3,958,582 4,022,133 Partners' Capital/(Deficit)... (2,048,883) (2,097,147) (2,122,192) (2,178,066) (2,148,461) (2,168,152) (2,196,126)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $1.80 $0.000 $0.000
S-25 1827 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. 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 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 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. S-26 1828 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. The 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 Code. 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 therefore 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 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. 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 S-27 1829 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 $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." 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 S-28 1830 AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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). S-29 1831 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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. 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. S-30 1832 - 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. Your Partnership has not paid any distributions on your units since the inception of your partnership. - 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). Your Partnership has not paid any distributions on your units since the inception of your partnership. 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 1833 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 1834 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 1835 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. 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. S-34 1836 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." 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. 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. S-35 1837 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, (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 9:00 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 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, Denver, Colorado 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. S-36 1838 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-37 1839 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 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 S-38 1840 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 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 S-39 1841 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-40 1842 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. 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. DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. S-41 1843 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 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 S-42 1844 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 payment. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income 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 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 S-43 1845 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-44 1846 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-46 1847 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-47 1848 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-48 1849 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-49 1850 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-50 1851 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-51 1852 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-52 1853 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-53 1854 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-54 1855 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-55 1856 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 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, a third party expert, 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 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, 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 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-55 1857 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................................ Not available Estimated Liquidation Proceeds............................ $
S-56 1858 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. 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-1 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-57 1859 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 1860 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 September 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 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 property was 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, S-59 1861 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 1862 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Georgetown of Columbus Apartments. 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 (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 2026. 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, develop, The purpose of the AIMCO Operating Partnership is to operate, lease, manage and hold for investment and conduct any business that may be lawfully conducted by production of income with your partnership's property. a limited partnership organized pursuant to the Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as agreement of limited partnership, your partnership may amended from time to time, or any successor to such perform all act necessary, advisable or convenient to statute) (the "Delaware Limited Partnership Act"), the business of your partnership including borrowing provided that such business is to be conducted in a 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-61 1863 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 25 units for cash and time to the limited partners and to other persons, and notes 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, except that the admission No action or consent by the OP Unitholders is required of the limited partners other than those who purchase in connection with the admission of any additional OP the 25 units and substituted limited partners must be Unitholder. See "Description of OP Units -- Management effected by an amendment to your partnership's by the AIMCO GP" in the accompanying Prospectus. agreement of limited partnership executed and Subject to Delaware law, any additional partnership acknowledge by the general partner and all the limited interests may be issued in one or more classes, or one partners. 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 contract with the funds or other assets to its subsidiaries or other general partner or its affiliates for various goods and persons in which it has an equity investment, and such services as specified in your partnership's agreement persons may borrow funds from the AIMCO Operating of limited partnership. In addition, the general Partnership, on terms and conditions established in the partner is authorized to lend money to your partnership sole and absolute discretion of the general partner. To upon the right of the general partner to be reimbursed the extent consistent with the business purpose of the for sums expended by the general partner in the conduct AIMCO Operating Partnership and the permitted of the business of your partnership if such expenditure activities of the general partner, the AIMCO Operating are authorized and not otherwise restricted under the Partnership may transfer assets to joint ventures, terms of your partnership's agreement of limited part- limited liability companies, partnerships, nership; provided that interest on such loans will corporations, business trusts or other business accrue at the greater of 2% over the prime interest entities in which it is or thereby becomes a rate charged by the Third National Bank in Nashville, participant upon such terms and subject to such adjusted monthly or the general partner's actual conditions consistent with the AIMCO Operating Part- interest cost in borrowing such amounts. The principal nership Agreement and applicable law as the general and interest with respect to such loans will be fully partner, in its sole and absolute discretion, believes paid prior to the distributions of funds to the to be advisable. Except as expressly permitted by the partners unless such loans contain a specific provision AIMCO Operating Partnership Agreement, neither the to the contrary. 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 obtain a loan of up to $1,650,000 from an restrictions on borrowings, and the general partner has institutional lender and to execute, acknowledge and full power and authority to borrow money on behalf of deliver such documents and instruments, including the AIMCO Operating Partnership. The AIMCO Operating promissory notes, collection agreements, deeds to Partnership has credit agreements that restrict, among secure debts, deeds of trust, mortgages, assignments other things, its ability to incur indebtedness. See and other documents and security instruments as may be "Risk Factors -- Risks of Significant Indebtedness" in necessary or desirable in connection with obtaining the accompanying Prospectus. such loan and also borrow money in the ordinary course of business and as security therefor to mortgage all or any part of the real property of your partnership. The partnership may also offer and sell up to $500,000 of mortgage-backed bonds.
S-62 1864 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 containing the names and addresses of all limited such OP Unitholder's own expense, to obtain a current partners at all reasonable times at the principal list of the name and last known business, residence or office of your partnership. mailing address of the general partner and each other OP Unitholder.
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. No limited partner has any right or power AIMCO Operating Partnership. The OP Unitholders have to take part in any way in the control of your the right to vote on certain matters described under partnership business except as may be expressly "Comparison of Ownership of Your Units and AIMCO OP provided in your partnership's agreement of limited Units -- Voting Rights" below. The general partner may partnership or by applicable statutes. 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 will not incur any liability to your partnership or any partner is not liable to the AIMCO Operating limited partner for any mistakes or errors in judgment Partnership for losses sustained, liabilities incurred or for any acts or omission believed by the general or benefits not derived as a result of errors in partner in good faith to be within the scope of judgment or mistakes of fact or law of any act or authority conferred upon it by your partnership omission if the general partner acted in good faith. agreement. In addition, your partnership will, to the The AIMCO Operating Partnership Agreement provides for extent permitted by law, indemnify and save harmless indemnification of AIMCO, or any director or officer of the general partner against and from any personal loss, AIMCO (in its capacity as the previous general partner liability (including attorneys' fees) or damage of the AIMCO Operating Partnership), the general incurred by it as the result of any act or omission in partner, any officer or director of general partner or its capacity as general partner unless such loss, the AIMCO Operating Partnership and such other persons liability or damage results from gross negligence or as the general partner may designate from and against willful misconduct by the general partner. 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 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 whatso-
S-63 1865 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ever. 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 following notice and a failure to cure the affairs of the AIMCO Operating Partnership. The general injury to your partnership within a reasonable time for partner may not be removed as general partner of the cause upon the vote of the limited partners holding 51% AIMCO Operating Partnership by the OP Unitholders with of the then outstanding units. The general partner may or without cause. Under the AIMCO Operating Partnership withdraw voluntarily from your partnership with the Agreement, the general partner may, in its sole consent of holders of 51% of the then outstanding discretion, prevent a transferee of an OP Unit from units. A substitute general partner may be elected upon becoming a substituted limited partner pursuant to the the affirmative vote of limited partners owning more AIMCO Operating Partnership Agreement. The general than 50% of the units. A limited partner may not partner may exercise this right of approval to deter, transfer his interests 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 limited partnership may With the exception of certain circumstances set forth be amended by the limited partners owning more than 50% in the AIMCO Operating Partnership Agreement, whereby of the units and the general partner. Any amendment the general partner may, without the consent of the OP which alters a limited partner's interest in the Unitholders, amend the AIMCO Operating Partnership capital profits, Distributable Cash of your partnership Agreement, amendments to the AIMCO Operating must be approved by the affected partner. Such proposed Partnership Agreement require the consent of the amendments may be presented to the limited partners holders of a majority of the outstanding Common OP upon the motion of the general partner or receipt of a Units, excluding AIMCO and certain other limited written request executed by limited partners owning at exclusions (a "Majority in Interest"). Amendments to least 25% of the units then outstanding. the AIMCO Operating Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives an annual fee of 1% of the gross collected capacity as general partner of the AIMCO Operating income from your partnership's property. Moreover, the Partnership. In addition, the AIMCO Operating Part- general partner or certain affiliates may be entitled nership is responsible for all expenses incurred to compensation for additional services rendered. 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-64 1866 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, the liability of each of the limited negligence, no OP Unitholder has personal liability for partners for his share of the losses and debts of your the AIMCO Operating Partnership's debts and partnership is limited to the total capital obligations, and liability of the OP Unitholders for contribution of such limited partners (subject to the the AIMCO Operating Partnership's debts and obligations terms and conditions pursuant to which such capital is generally limited to the amount of their invest- contribution is to be paid) plus, to the extent that ment in the AIMCO Operating Partnership. However, the such limited partner rightfully has received the return limitations on the liability of limited partners for of such capital contribution, any sum, not in excess of the obligations of a limited partnership have not been such return, necessary to discharge liabilities of your clearly established in some states. If it were partnership to all creditors who extended credit before determined that the AIMCO Operating Partnership had such return; provided that the liability with respect been conducting business in any state without compli- to rightfully returned capital contribution is limited ance with the applicable limited partnership statute, to one year from the date of such return. 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 devote such of partnership agreement, Delaware law generally requires its time and that of its employees to your partnership a general partner of a Delaware limited partnership to business as may be reasonably necessary to carry on and adhere to fiduciary duty standards under which it owes conduct your partnership's business. The general its limited partners the highest duties of good faith, partner must use its best effort to do all other things fairness and loyalty and which generally prohibit such and perform such other duties as may be reasonably general partner from taking any action or engaging in necessary to the successful operation of your any transaction as to which it has a conflict of partnership and the general partner must act as a interest. The AIMCO Operating Partnership Agreement fiduciary with respect to the assets and business of expressly authorizes the general partner to enter into, your partnership. The general partner and its on behalf of the AIMCO Operating Partnership, a right affiliates may engage in or possess an interest in of first opportunity arrangement and other conflict other business ventures of every nature and avoidance agreements with various affiliates of the description, including, without limitation, real estate AIMCO Operating Partnership and the general partner, on business ventures, whether or not such other enterprise such terms as the general partner, in its sole and is in competition with any of the activities 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 1867 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 with the Units. See "Description of OP Partnership Agreement and certain approval of the general partner, Units" in the accompanying transactions such as the subject to certain exceptions; Prospectus. So long as any institution of bankruptcy terminate your partnership with the Preferred OP Units are outstand- proceedings, an assignment for the approval of the general partner; ing, in addition to any other vote benefit of creditors and certain remove or elect a general partner or consent of partners required by transfers by the general partner of and approve or disapprove the sale law or by the AIMCO Operating its interest in the AIMCO Operating of all or a Partnership Agree- Part-
S-66 1868 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS material portion of your ment, the affirmative vote or nership or the admission of a partnership's property. consent of holders of at least 50% successor general partner. of the outstanding Preferred OP The 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 retiring. Your partnership may then the provisions of the Partnership has the power to effect the be reformed by the limited partners Unit Designation of the Preferred acquisition, sale, transfer, holding 51% of the units then OP Units that materially and exchange or other disposition of outstanding within ninety days adversely affects the rights or any assets of the AIMCO Operating following such retirement. In such preferences of the holders of the Partnership (including, but not an event, your partnership will Preferred OP Units. The creation or limited to, the exercise or grant dissolve and all of its assets and issuance of any class or series of of any conversion, option, liability will be contributed to a partnership units, including, privilege or subscription right or new partnership and all parties of without limitation, any partner- any other right available in your partnership will become ship units that may have rights connection with any assets at any parties to the new partnership. 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 Distributable Cash $ per Preferred OP Unit; tribute quarterly all, or such are to be made quarterly on or provided, however, that at any time portion as the general partner may about January 15, April 15, July 15 and from time to time on or after in its sole and absolute discretion and October 15. 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. Your interest rate then applicable to partner and the holders of Common partnership has not made U.S. Treasury notes with a maturity OP Units on the record date distributions in the past and is of five years, and (ii) the annual established by the general partner not projected to make distributions dividend rate on the most recently with respect to such quarter, in in 1998. 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-67 1869 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 and such person Preferred OP Units and the OP Units. The AIMCO Operating Part- will become a substitute limited Preferred OP Units are not listed nership Agreement restricts the partner if: (1) a written on any securities exchange. The transferability of the OP Units. assignment has been duly executed Preferred OP Units are subject to Until the expiration of one year and acknowledged by the assignor restrictions on transfer as set from the date on which an OP and assignee and delivered to the forth in the AIMCO Operating Unitholder acquired OP Units, general partners, (2) the approval Partnership Agreement. subject to certain exceptions, such of the general partner which may be OP Unitholder may not transfer all withheld in the sole discretion and Pursuant to the AIMCO Operating or any portion of its OP Units to which will be withheld if the Partnership Agreement, until the any transferee without the consent general partner reasonably believes expiration of one year from the of the general partner, which that the transfer violates date on which a holder of Preferred consent may be withheld in its sole applicable securities law or result OP Units acquired Preferred OP and absolute discretion. After the in adverse tax consequences, Units, subject to certain expiration of one year, such OP including the termination of your exceptions, such holder of Unitholder has the right to partnership for tax purposes, (3) Preferred OP Units may not transfer transfer all or any portion of its the assignee has agreement to bound all or any portion of its Pre- OP Units to any person, subject to by all of the terms of your ferred OP Units to any transferee the satisfaction of certain partnership's agreement of limited without the consent of the general conditions specified in the AIMCO partnership and absolute discre- partner, which consent may be Operating Partnership Agreement, tion of the general partner has withheld in its sole and absolute including the general partner's been granted, (4) the assignee discretion. After the expiration of right of first refusal. See represents he is at least 18 years one year, such holders of Preferred "Description of OP Units -- of age, is a citizen and resident OP Units has the right to transfer Transfers and Withdrawals" in the of the U.S., has sufficient finan- all or any portion of its Preferred accompanying Prospectus. cial resources to maintain the OP Units to any person, subject to interest ac- the satisfaction of
S-68 1870 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS quired and that he is not acquiring certain conditions specified in the After the first anniversary of the interest with a view to resell AIMCO Operating Partnership Agree- becoming a holder of Common OP the interest and (5) the assignor ment, including the general Units, an OP Unitholder has the and assignee have complied with partner's right of first refusal. right, subject to the terms and such other conditions as set forth conditions of the AIMCO Operating in your partnership's agreement of After a one-year holding period, a Partnership Agreement, to require limited partnership. holder may redeem Preferred OP the AIMCO Operating Partnership to Units and receive in exchange redeem all or a portion of the There are no redemption rights therefor, at the AIMCO Operating Common OP Units held by such party associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 1871 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual fee of 1% of the gross collected income from your partnership's property and may receive reimbursement for expenses generated in that capacity from your partnership. The property manager received management fees of $51,864 in 1996, $55,922 in 1997 and $28,257 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's 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'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 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-70 1872 YOUR PARTNERSHIP GENERAL Georgetown of Columbus Associates, L.P. is a Delaware limited partnership which raised net proceeds of approximately $2,500,000 in 1983 through a private offering. The promoter for the private offering of your partnership was Jacques-Miller. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 53 limited partners of your partnership and a total of 25 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 5, 1983 for the purpose of owning and operating a single apartment property located in Columbus, Ohio, known as "Georgetown of Columbus Apartments." Your partnership's property consists of 150 apartment units. There are 9 one-bedroom apartments, 130 two-bedroom apartments, 10 three-bedroom apartments and 1 four-bedroom apartment. The total rentable square footage of your partnership's property is 128,892 square feet. Your partnership's property had an average occupancy rate of approximately 95.33% in 1996 and 95.33% in 1997. The average annual rent per apartment unit is approximately $7,121. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $51,864, $55,922 and $28,257, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2026 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 1873 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,706,761, payable to FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $131,718, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 1874 Below is selected financial information for Georgetown of Columbus Associates, L.P. taken from the financial statements described above. The 1994 and 1993 amounts have been derived from audited financial statements which are not included as part of this Prospectus Supplement. See "Index to Financial Statements."
GEORGETOWN OF COLUMBUS ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 24,777 $ 6,288 $ 15,001 $ 17,946 $ 60,760 $ 97,254 $ 51,437 Land & Building.............. 4,905,952 4,832,314 4,885,955 4,815,197 4,738,008 4,689,991 4,637,305 Accumulated Depreciation..... (3,422,788) (3,325,091) (3,373,939) (3,276,242) (3,184,173) (3,097,662) (3,018,629) Other Assets................. 298,037 278,781 328,040 297,342 286,126 289,590 316,980 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 1,805,978 $ 1,792,292 $ 1,855,057 $ 1,854,243 $ 1,900,721 $ 1,979,173 $ 1,987,093 =========== =========== =========== =========== =========== =========== =========== LIABILITIES AND PARTNERS' DEFICIT Mortgage & Accrued Interest................... $ 3,688,228 $ 3,771,102 $ 3,723,480 $ 3,813,563 $ 3,889,235 $ 3,958,582 $ 4,022,133 Other Liabilities............ 166,633 118,337 253,769 218,746 159,947 188,743 161,086 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... $ 3,854,861 $ 3,889,439 $ 3,977,249 $ 4,032,309 $ 4,049,182 $ 4,147,325 $ 4,183,219 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $(2,048,883) $(2,097,147) $(2,122,192) $(2,178,066) $(2,148,461) $(2,168,152) $(2,196,126) =========== =========== =========== =========== =========== =========== ===========
GEORGETOWN OF COLUMBUS ASSOCIATES, L.P. ------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, --------------------- ------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 -------- ---------- ---------- ---------- ---------- -------- ---------- STATEMENT OF OPERATIONS Rental Revenue......................... $529,428 $ 530,425 $1,077,470 $1,007,702 $ 964,312 $954,213 $ 929,778 Other Income........................... 31,472 20,466 43,093 38,203 44,771 33,406 33,191 -------- ---------- ---------- ---------- ---------- -------- ---------- Total Revenue................. $560,900 $ 550,891 $1,120,563 $1,045,905 $1,009,083 $987,619 $ 962,969 -------- ---------- ---------- ---------- ---------- -------- ---------- Operating Expenses..................... $208,409 $ 206,265 $ 506,823 $ 506,255 $ 420,214 $390,395 $ 453,825 General & Administrative............... 19,990 17,414 36,549 38,664 37,672 45,340 46,289 Depreciation........................... 48,849 48,849 97,697 92,069 96,487 83,469 222,595 Interest Expense....................... 164,465 151,529 335,895 350,280 356,345 362,732 367,717 Property Taxes......................... 45,878 45,915 87,725 88,242 78,674 77,709 77,847 -------- ---------- ---------- ---------- ---------- -------- ---------- Total Expenses................ $487,591 $ 469,972 $1,064,689 $1,075,510 $ 989,392 $959,645 $1,168,273 -------- ---------- ---------- ---------- ---------- -------- ---------- Net Income (Loss)............. $ 73,309 $ 80,920 $ 55,874 $ (29,605) $ 19,691 $ 27,974 $ (205,304) ======== ========== ========== ========== ========== ======== ==========
S-73 1875 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $73,310 for the six months ended June 30, 1998, compared to $80,920 for the six months ended June 30, 1997. The decrease in net income of $7,610, or 9.40% was primarily the result of an increase in operating expenses offset by an increase in total revenue. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $560,900 for the six months ended June 30, 1998, compared to $550,891 for the six months ended June 30, 1997, a increase of $10,009, or 1.82%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $208,409 for the six months ended June 30, 1998, compared to $206,265 for the six months ended June 30, 1997, an increase of $2,144 or 1.04%. Management expenses totaled $28,257 for the six months ended June 30, 1998, compared to $27,941 for the six months ended June 30, 1997, an increase of $316, or 1.13%. General and Administrative Expenses General and administrative expenses totaled $19,990 for the six months ended June 30, 1998 compared to $17,414 for the six months ended June 30, 1997, an increase of $2,576 or 14.79%. This increase was primarily due to an increase in general partner reimbursements. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $164,465 for the six months ended June 30, 1998, compared to $151,529 for the six months ended June 30, 1997, an increase of $12,936, or 8.54%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $55,874 for the year ended December 31, 1997, compared to a net loss of $29,605 for the year ended December 31, 1996. The increase in net income of $ 85,479, or 288.73% was primarily the result of increasing rental revenue while maintaining stable operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,120,563 for the year ended December 31, 1997, compared to $1,045,905 for the year ended December 31, 1996, an increase of $74,658, or 7.14%. This increase was primarily the result of an increase in occupancy and rental rates. S-74 1876 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $506,823 for the year ended December 31, 1997, compared to $506,255 for the year ended December 31, 1996, an increase of $568 or 0.11%. Management expenses totaled $55,922 for the year ended December 31, 1997, compared to $51,864 for the year ended December 31, 1996, an increase of $4,058, or 7.82%. The increase resulted from an increase in rental revenues as management fees are calculated based on a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $36,549 for the year ended December 31, 1997 compared to $38,664 for the year ended December 31, 1996, a decrease of $2,115 or 5.47%. The decrease was primarily due to decreased training and travel expenses and decreased legal fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $335,895 for the year ended December 31, 1997, compared to $350,280 for the year ended December 31, 1996, a decrease of $14,385, or 4.11%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $29,605 for the year ended December 31, 1996, compared to a net income of $19,691 for the year ended December 31, 1995. The decrease in net income of $49,296, or 250.35% was primarily the result of an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,045,905 for the year ended December 31, 1996, compared to $1,009,083 for the year ended December 31, 1995, an increase of $36,822, or 3.65%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $506,255 for the year ended December 31, 1996, compared to $420,214 for the year ended December 31, 1995, an increase of $86,041 or 20.48%. This increase was primarily the result of an increase in property improvement costs. Management expenses totaled $51,864 for the year ended December 31, 1996, compared to $50,789 for the year ended December 31, 1995, an increase of $1,075, or 2.12%. General and Administrative Expenses General and administrative expenses totaled $38,664 for the year ended December 31, 1996 compared to $37,672 for the year ended December 31, 1995, an increase of $992 or 2.63%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $350,280 for the year ended December 31, 1996, compared to $356,345 for the year ended December 31, 1995, a decrease of $6,065, or 1.70%. S-75 1877 Liquidity and Capital Resources As of June 30, 1998, your partnership had $24,777 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 will not incur any liability to your partnership or any limited partner for any mistakes or errors in judgment or for any acts or omission believed by the general partner in good faith to be within the scope of authority conferred upon it by your partnership agreement. 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 owned by AIMCO. See "Conflicts of Interest". Your partnership will, to the extent permitted by law, indemnify and save harmless the general partner against and from any personal loss, liability (including attorneys' fees) or damage incurred by it as the result of any act or omission in its capacity as general partner unless such loss, liability or damage results from gross negligence or willful misconduct by the general partner. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions Your partnership has not made a distribution within the last five years. The original cost per unit was $25,510. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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-76 1878 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $24,062 1995........................................................ 25,936 1996........................................................ 27,513 1997........................................................ 29,242
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995............................................ $50,789 1996............................................ 51,864 1997............................................ 55,922 1998 (through June 30).......................... 28,257
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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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. S-77 1879 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 Georgetown of Columbus Associates, L.P. at December 31, 1997, 1996 and, 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-78 1880 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-10 Notes to Financial Statements............................... F-11 Independent Auditors' Report................................ F-15 Balance Sheets as of December 31, 1996 and 1995............. F-16 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-17 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-18 Notes to Financial Statements............................... F-19
F-1 1881 GEORGETOWN OF COLUMBUS CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 24,777 Receivables and Deposits.................................... 27,795 Investments................................................. -- Restricted Escrows.......................................... 208,965 Other Assets................................................ 61,277 Investment Property: Land...................................................... $ 340,190 Building and related personal property.................... 4,565,762 ----------- 4,905,952 Less: Accumulated depreciation............................ (3,422,788) 1,483,164 ----------- ----------- Total Assets:..................................... $ 1,805,978 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 26,772 Other Accrued Liabilities................................... 79,209 Property Taxes Payable...................................... 45,878 Tenant Security Deposits.................................... 27,118 Notes Payable............................................... 3,675,884 Partners' Capital........................................... (2,048,883) ----------- Total Liabilities and Partners' Capital........... $ 1,805,978 ===========
See the notes to the interim financial statements. F-2 1882 GEORGETOWN OF COLUMBUS CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $529,428 $530,425 Other Income.............................................. 31,472 20,466 -------- -------- Total Revenues:................................... 560,900 550,891 Expenses: Operating Expenses........................................ 208,409 206,265 General and Administrative Expenses....................... 19,990 17,414 Depreciation Expense...................................... 48,849 48,848 Interest Expense.......................................... 164,465 151,529 Property Tax Expense...................................... 45,878 45,915 -------- -------- Total Expenses:................................... 487,591 469,971 Net Income........................................ $ 73,309 $ 80,920 ======== ========
F-3 1883 GEORGETOWN OF COLUMBUS CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Operating Activities: Net Income (loss)......................................... $ 73,309 $ 80,920 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 66,126 48,848 Changes in accounts: Receivables and deposits and other assets............ 73,865 28,010 Accounts Payable and accrued expenses................ (74,792) (87,710) -------- -------- Net cash provided by (used in) operating activities....................................... 138,508 70,068 -------- -------- Investing Activities: Property improvements and replacements.................... (19,997) (17,118) Net (increase)/decrease in restricted escrows............. (49,234) (9,448) -------- -------- Net cash provided by (used in) investing activities....................................... (69,231) (26,566) -------- -------- Financing Activities: Payments on mortgage...................................... (59,501) (55,160) -------- -------- Net cash provided by (used in) financing activities....................................... (59,501) (55,160) -------- -------- Net increase (decrease) in cash and cash equivalents...................................... 9,776 (11,658) Cash and cash equivalents at beginning of year............ 15,001 17,946 -------- -------- Cash and cash equivalents at end of period................ $ 24,777 $ 6,288 ======== ========
F-4 1884 GEORGETOWN OF COLUMBUS NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Burgundy Court Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 1885 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 1886 INDEPENDENT AUDITORS' REPORT General Partners Georgetown of Columbus Associates, Limited: We have audited the accompanying balance sheets of Georgetown of Columbus Associates, Limited as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Georgetown of Columbus Associates, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 26, 1998 F-7 1887 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 15,001 $ 17,946 Receivables and deposits.................................... 96,733 67,832 Restricted escrows (Note B)................................. 159,731 153,166 Other assets................................................ 71,576 76,344 Investment properties (Note C): Land...................................................... 340,190 340,190 Buildings and related personal property................... 4,545,765 4,475,007 ----------- ----------- 4,885,955 4,815,197 Less accumulated depreciation............................. (3,373,939) (3,276,242) ----------- ----------- 1,512,016 1,538,955 ----------- ----------- $ 1,855,057 $ 1,854,243 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable (Note D)................................. $ 111,398 $ 75,737 Tenant security deposit liabilities....................... 29,758 28,778 Accrued taxes............................................. 87,386 87,458 Other liabilities......................................... 25,227 26,773 Mortgage notes payable (Note C)........................... 3,723,480 3,813,563 Partners' deficit........................................... (2,122,192) (2,178,066) ----------- ----------- $ 1,855,057 $ 1,854,243 =========== ===========
See Accompanying Notes to Financial Statements F-8 1888 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 1,077,470 $ 1,007,702 Other income.............................................. 43,093 38,203 ----------- ----------- Total revenues.................................... 1,120,563 1,045,905 ----------- ----------- Expenses: Operating (Note D)........................................ 506,823 506,255 General and administrative (Note D)....................... 36,549 38,664 Depreciation.............................................. 97,697 92,069 Interest.................................................. 335,895 350,280 Property taxes............................................ 87,725 88,242 ----------- ----------- Total expenses.................................... 1,064,689 1,075,510 ----------- ----------- Net income (loss)........................................... 55,874 (29,605) Partners' deficit at beginning of year...................... (2,178,066) (2,148,461) ----------- ----------- Partners' deficit at end of year............................ $(2,122,192) $(2,178,066) =========== ===========
See Accompanying Notes to Financial Statements F-9 1889 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash flows from operating activities: Net income (loss)......................................... $ 55,874 $ (29,605) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 97,697 92,069 Amortization of discounts, loan costs and other deferred costs........................................ 35,322 41,477 Change in accounts: Receivables and deposits............................. (28,901) 5,306 Other assets......................................... (8,187) -- Accounts payable..................................... 35,661 48,229 Tenant security deposit liabilities.................. 980 (2,172) Accrued taxes........................................ (72) 9,681 Other liabilities.................................... (1,546) 3,061 --------- --------- Net cash provided by operating activities......... 186,828 168,046 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (70,758) (77,189) Deposits to restricted escrows............................ (6,565) (6,505) Receipts from restricted escrows.......................... -- 7,617 --------- --------- Net cash used in investing activities............. (77,323) (76,077) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (112,450) (104,245) --------- --------- Net cash used in financing activities............. (112,450) (104,245) --------- --------- Net decrease in cash and cash equivalents................... (2,945) (12,276) Cash and cash equivalents at beginning of year.............. 17,946 30,222 --------- --------- Cash and cash equivalents at end of year.................... $ 15,001 $ 17,946 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 300,929 $ 309,134 ========= =========
See Accompanying Notes to Financial Statements F-10 1890 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Georgetown of Columbus Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated October 13, 1983. The Partnership owns and operates a 150 unit apartment complex, Georgetown of Columbus Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 10 to 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $63,389 and $76,344, respectively, which are amortized over the term of the related borrowing. Deferred loan costs are presented net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-11 1891 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. $159,731 $153,166 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $33,614, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,766,261 $3,878,711 Second mortgage note payable in interest only monthly installments of $834, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 131,718 131,718 ---------- ---------- Principal balances at year end.............................. 3,897,979 4,010,429 Less unamortized discount................................... (174,499) (196,866) ---------- ---------- $3,723,480 $3,813,563 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 121,300 1999..................................................... 130,846 2000..................................................... 141,141 2001..................................................... 152,253 2002..................................................... 3,352,439 ---------- $3,897,979 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In F-12 1892 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions and balances with the Managing General Partner and its affiliates for the years ended December 31, 1997 and 1996 are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee.............................................. $55,922 $51,864 Partnership administration fee.............................. $12,510 $10,020 Reimbursement for services of affiliates.................... $16,582 $16,703 Reimbursement for construction oversight costs.............. $ 150 $ 790 Payable to Insignia Residential Group....................... $36,602 $ 7,510
F-13 1893 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 1894 INDEPENDENT AUDITORS' REPORT General Partners Georgetown of Columbus Associates, Limited: We have audited the accompanying balance sheets of Georgetown of Columbus Associates, Limited as of December 31, 1996 and 1995, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Georgetown of Columbus Associates, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 6, 1997 F-15 1895 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 17,946 $ 30,222 Restricted -- tenant security deposits.................... 28,778 30,538 Accounts receivable......................................... 1,172 192 Escrow for taxes............................................ 37,882 42,408 Restricted escrows (Note B)................................. 153,166 154,278 Other assets................................................ 76,344 89,248 Investment properties (Note C): Land...................................................... 340,190 340,190 Buildings and related personal property................... 4,475,007 4,397,818 ----------- ----------- 4,815,197 4,738,008 Less accumulated depreciation............................. (3,276,242) (3,184,173) ----------- ----------- 1,538,955 1,553,835 ----------- ----------- $ 1,854,243 $ 1,900,721 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 75,737 $ 27,508 Tenant security deposits.................................. 28,778 30,950 Accrued taxes............................................. 87,458 77,777 Other liabilities......................................... 26,773 23,712 Mortgage notes payable (Note C)........................... 3,813,563 3,889,235 Partners' deficit........................................... (2,178,066) (2,148,461) ----------- ----------- $ 1,854,243 $ 1,900,721 =========== ===========
See Accompanying Notes to Financial Statements F-16 1896 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 1,007,702 $ 964,312 Other income.............................................. 38,203 44,771 ----------- ----------- Total revenues.................................... 1,045,905 1,009,083 ----------- ----------- Expenses: Operating (Note D)........................................ 357,814 325,836 General and administrative (Note D)....................... 38,664 37,672 Maintenance............................................... 148,441 94,378 Depreciation.............................................. 92,069 96,487 Interest.................................................. 350,280 356,345 Property taxes............................................ 88,242 78,674 ----------- ----------- Total expenses.................................... 1,075,510 989,392 ----------- ----------- Net (loss) income........................................... (29,605) 19,691 Partners' deficit at beginning of year...................... (2,148,461) (2,168,152) ----------- ----------- Partners' deficit at end of year............................ $(2,178,066) $(2,148,461) =========== ===========
See Accompanying Notes to Financial Statements F-17 1897 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ----------- ---------- Cash flows from operating activities: Net (loss) income......................................... $ (29,605) $ 19,691 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation........................................... 92,069 96,487 Amortization of discounts, loan costs and other deferred costs........................................ 41,477 50,172 Change in accounts: Restricted cash...................................... 1,760 690 Accounts receivable.................................. (980) (192) Escrow for taxes..................................... 4,526 1,657 Accounts payable..................................... 48,229 20,903 Tenant security deposit liabilities.................. (2,172) (2,985) Accrued taxes........................................ 9,681 1,000 Other liabilities.................................... 3,061 (47,714) --------- -------- Net cash provided by operating activities......... 168,046 139,709 --------- -------- Cash flows from investing activities: Property improvements and replacements.................... (77,189) (57,993) Deposits to restricted escrows............................ (6,505) (31,974) Receipts from restricted escrows.......................... 7,617 11,093 --------- -------- Net cash used in investing activities............. (76,077) (78,874) --------- -------- Cash flows from financing activities: Payments on mortgage notes payable........................ (104,245) (96,639) --------- -------- Net cash used in financing activities............. (104,245) (96,639) --------- -------- Net decrease in cash and cash equivalents................... (12,276) (35,804) Cash and cash equivalents at beginning of year.............. 30,222 66,026 --------- -------- Cash and cash equivalents at end of year.................... $ 17,946 $ 30,222 ========= ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 309,134 $316,740 ========= ========
See Accompanying Notes to Financial Statements F-18 1898 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Georgetown of Columbus Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated October 13, 1983. The Partnership owns and operates a 150 unit apartment complex, Georgetown of Columbus Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 10 to 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1996 and 1995 consist of deferred loan costs which are amortized over the term of the related borrowing. Deferred loan costs are presented net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. F-19 1899 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. $153,166 $154,278 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $33,614, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,878,711 $3,982,956 Second mortgage note payable in interest only monthly installments of $834, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 131,718 131,718 ---------- ---------- Principal balances at year end.............................. 4,010,429 4,114,674 Less unamortized discount................................... (196,866) (225,439) ---------- ---------- $3,813,563.. $3,889,235 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 112,449 1998..................................................... 121,300 1999..................................................... 130,846 2000..................................................... 141,141 2001..................................................... 152,253 Thereafter............................................... 3,352,440 ---------- $4,010,429 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. F-20 1900 GEORGETOWN OF COLUMBUS ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Transactions with the Managing General Partner and its affiliates for the years ended December 31, 1996 and 1995 are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee.............................................. $51,864 $50,789 Partnership administration fee.............................. $10,020 $10,096 Reimbursement for services of affiliates.................... $16,703 $15,840 Reimbursement for construction oversight costs.............. $ 790 $ --
F-21 1901 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 1902 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 1903 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 September , 1998 A-3 1904 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF LA COLINA PARTNERS, 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. STRANGER & 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 1905 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-13 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 La Colina Partners, 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-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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 1906
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 1907 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 La Colina Partners, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 the managing general partner (the "general partner") of your partnership 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 1908 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 1909 - 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 $385 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 a distribution 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 would receive in an exchange of your partnership 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 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 1910 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1911 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 100% of 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? 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: 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 1912 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 1913 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. 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 date 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. 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 5 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. 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 S-7 1914 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 1915 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 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 S-9 1916 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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 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. 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. S-10 1917 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, 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. 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 S-11 1918 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 1919 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. 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 S-13 1920 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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. S-14 1921 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 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 CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. S-15 1922 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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................................. ===========
- --------------- (1) As of June 30, 1998 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 own 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 S-16 1923 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, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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 Consideration 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-1 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, unlike the AIMCO Operating Partnership's agreement of limited partnership, your partnership's agreement of limited partnership does not limit the liability of the general partners to your partnership or the limited 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, S-17 1924 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 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 the greater of an amount equal to 7.5% of the Net Cash Flow or $10,000, payable monthly in addition to reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $80,878 in 1996, $83,502 in 1997 and $44,072 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 Your Partnership and its Property. La Colina Partners, Ltd. is a California limited partnership which was formed on January 1, 1993 for the purpose of owning and operating a single apartment property located in Denton, Texas, known as "La Colina Ranch Apartments." In 1983, it completed a private placement of units that raised net proceeds of approximately $2,548,000. La Colina Ranch Apartments consists of 264 apartment units. Your partnership has no employees. Property Management. Since November 1992, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new S-18 1925 properties. Your partnership will terminate on December 31, 2023, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $5,014,155, payable to FNMA, which bears interest at a rate of 7.83%. The mortgage debt is due in October 2003. Your partnership also has a second mortgage note outstanding of $163,710, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 1926 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 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 1927
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 1928 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 1929
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 1930 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 1931 SUMMARY FINANCIAL INFORMATION OF LA COLINA PARTNERS, LTD. The summary financial information of La Colina Partners, Ltd. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for La Colina Partners, Ltd. for the years ended December 31, 1997, 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 of Your Partnership" included herein. See "Index to Financial Statements." LA COLINA PARTNERS, LTD.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... 878,535 857,460 1,733,765 1,681,643 2,152,848 1,561,608 1,425,575 Net Income/(Loss)............ 195,627 188,035 285,242 120,051 806,726 87,132 (620,205) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... 906,786 856,285 878,987 750,950 710,040 644,806 667,557 Total Assets................. 2,260,764 2,776,909 2,197,691 2,717,450 2,555,792 1,926,152 1,799,221 Mortgage Notes Payable, including Accrued Interest................... 5,117,342 5,175,045 5,152,338 5,747,001 5,796,983 5,841,983 5,901,227 Partners' Capital/(Deficit).......... (3,056,121) (3,328,955) (3,251,748) (3,516,990) (3,636,041) (4,238,073) (4,325,205)
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 YOUR 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 $385
S-25 1932 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. 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 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 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, 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 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. S-26 1933 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 Code. 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 therefore 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 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. 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 S-27 1934 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25, and the 1998 distributions of $0.00 with respect to your units, 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 S-28 1935 AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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). S-29 1936 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 OP Units rank equal to six other outstanding classes of Partnership Preferred Units. S-30 1937 - 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 1938 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 and the expiration of the offer. See "Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. S-32 1939 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 1940 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. 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. S-34 1941 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." 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. 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. S-35 1942 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, (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 9:00 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 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, Denver, Colorado time. S-36 1943 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 1944 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. 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 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 S-38 1945 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 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 S-39 1946 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 1947 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. 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. 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-41 1948 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-42 1949 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 payment. 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 OP Units and any such S-43 1950 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-44 1951 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-45 1952 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-46 1953 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-47 1954 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-48 1955 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-49 1956 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 1957 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-51 1958 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 1959 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 1960 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 1961 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 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, a third party expert, 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 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions of $ with respect to the Common OP Units and the 1998 distributions of $385 with respect to your units, distributions with respect to the Preferred OP Units and Common OP Units being offered are expected to be , immediately following the offer, than the distributions with respect to your units. This is equivalent to a distribution 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 would receive in an exchange of your partnership 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 S-55 1962 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 Consideration.................................... $ Alternatives: Prices on Secondary Market................................ Not available Estimated Liquidation Proceeds............................ $
S-56 1963 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. 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-1 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-57 1964 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 1965 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 September 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 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 property was 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, S-59 1966 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 1967 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing La Colina Ranch Apartments. 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 (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 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 to be the sole limited The purpose of the AIMCO Operating Partnership is to partner of La Colina Ranch Apartments, Ltd., a limited conduct any business that may be lawfully conducted by partnership, which will acquire, complete construction a limited partnership organized pursuant to the of and hold your partnership's property. Subject to Delaware Revised Uniform Limited Partnership Act (as restrictions contained in your partnership's agreement amended from time to time, or any successor to such of limited partnership, your partnership may do all statute) (the "Delaware Limited Partnership Act"), things necessary for or incidental to the protection provided that such business is to be conducted in a and benefit of your partnership, including, without manner that permits AIMCO to be qualified as a REIT, limitation, borrowing funds 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-61 1968 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 200 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. In addition, the managing contributions as may be established by the general general has the authority to increase the number of partner in its sole discretion. The net capital units. The partnership may not issue senior securities contribution need not be equal for all OP Unitholders. nor issue units for property other than cash or cash No action or consent by the OP Unitholders is required and notes. The capital contribution need not be equal in connection with the admission of any additional OP for all limited partners and no action or consent is Unitholder. See "Description of OP Units -- Management required in connection with the admission of any by the AIMCO GP" in the accompanying Prospectus. additional limited 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 The general partner of your partnership may enter into The AIMCO Operating Partnership may lend or contribute agreements with any of its affiliates; provided that funds or other assets to its subsidiaries or other such agreements must contain terms reasonably persons in which it has an equity investment, and such competitive with those which may be obtained from persons may borrow funds from the AIMCO Operating independent third parties. The general partner may also Partnership, on terms and conditions established in the lend money to your partnership as needed with interest sole and absolute discretion of the general partner. To charged at the rate of the lesser of the maximum rate the extent consistent with the business purpose of the permitted under the laws of California or the prime AIMCO Operating Partnership and the permitted rate then being charged for short-term commercial loans activities of the general partner, the AIMCO Operating by Bank of America N.T. & S.A. plus 3%. 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 on behalf of your partnership, to borrow funds, execute restrictions on borrowings, and the general partner has and issue mortgage notes and other evidences of full power and authority to borrow money on behalf of indebtedness and secure such indebtedness by mortgage, the AIMCO Operating Partnership. The AIMCO Operating deed of trust, pledge or other lien. 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.
S-62 1969 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 the limited partners or their duly authorized with a statement of the purpose of such demand and at representative to review the books and records of your such OP Unitholder's own expense, to obtain a current partnership upon reasonable notice at reasonable times list of the name and last known business, residence or at the location where such records are kept by your mailing address of the general partner and each other partnership. OP Unitholder.
Management Control The general partner of your partnership has complete All management powers over the business and affairs of discretion in the management and control of the the AIMCO Operating Partnership are vested in AIMCO-GP, business of your partnership for the purposes stated in Inc., which is the general partner. No OP Unitholder your partnership's agreement of limited partnership, 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 and manages and controls the affairs of AIMCO Operating Partnership. The OP Unitholders have your partnership. No limited partner may take part in the right to vote on certain matters described under the management of the business of your partnership, "Comparison of Ownership of Your Units and AIMCO OP transact any business of your partnership or have the Units -- Voting Rights" below. The general partner may power to sign for or to bind your partnership to any not be removed by the OP Unitholders with or without agreement or document. 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 limit the liability of the general partner to the AIMCO Operating Partnership Agreement, the general your partnership or any limited partners for acts done partner is not liable to the AIMCO Operating in their capacity as general partner. However, under Partnership for losses sustained, liabilities incurred your partnership's agreement of limited partnership, or benefits not derived as a result of errors in the general partners of your partnership are judgment or mistakes of fact or law of any act or indemnified for any loss or damage, including legal omission if the general partner acted in good faith. fees and expenses and amounts paid in settlement, The AIMCO Operating Partnership Agreement provides for incurred by such parties by reason of any act performed indemnification of AIMCO, or any director or officer of or omitted by such parties on behalf of your AIMCO (in its capacity as the previous general partner partnership or in furtherance of your partnership's of the AIMCO Operating Partnership), the general interest, provided that the party sued will not be partner, any officer or director of general partner or entitled to indemnification for losses sustained by the AIMCO Operating Partnership and such other persons reason of their gross negligence, willful misconduct or as the general partner may designate from and against breach of fiduciary obligations. 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 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
S-63 1970 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 the has exclusive management power over the business and general partner upon a vote of all of the limited affairs of the AIMCO Operating Partnership. The general partners. The general partner may resign upon 90 days partner may not be removed as general partner of the notice with the consent of the remaining general AIMCO Operating Partnership by the OP Unitholders with partner; provided, the remaining general partner is or without cause. Under the AIMCO Operating Partnership qualified to act as such and has sufficient net worth Agreement, the general partner may, in its sole to meet the requirements of the tax code. The general discretion, prevent a transferee of an OP Unit from partner may add another person as general partner becoming a substituted limited partner pursuant to the pursuant to the consent granted by the limited partners AIMCO Operating Partnership Agreement. The general in your partnership's agreement of limited partnership. partner may exercise this right of approval to deter, The affirmative vote or written consent of holders of delay or hamper attempts by persons to acquire a more than 50% of the units is required for the general controlling interest in the AIMCO Operating Partner- partner to substitute another in its place. The limited ship. Additionally, the AIMCO Operating Partnership partners owning 100% of the limited partnership Agreement contains restrictions on the ability of OP interests then outstanding may elect another person as Unitholders to transfer their OP Units. See additional or substitute general partner without the "Description of OP Units -- Transfers and Withdrawals" consent of the existing general partner. A limited in the accompanying Prospectus. partner may not transfer its units without the consent of the general partner which may be withheld in sole and absolute discretion of the managing general partner.
Amendment of Your Partnership Agreement Amendments to your partnership's agreement of limited With the exception of certain circumstances set forth partnership may be proposed by the general partner of in the AIMCO Operating Partnership Agreement, whereby your partnership or by limited partners owning at least the general partner may, without the consent of the OP 10% of the then outstanding limited partnership Unitholders, amend the AIMCO Operating Partnership interests. Approval by a majority of the then Agreement, amendments to the AIMCO Operating outstanding limited partnership interests is necessary Partnership Agreement require the consent of the to effect an amendment to your partnership's agreement holders of a majority of the outstanding Common OP of limited partnership, except that any proposal Units, excluding AIMCO and certain other limited requiring a greater affirmative vote for the matter exclusions (a "Majority in Interest"). Amendments to addressed also requires such greater affirmative vote the AIMCO Operating Partnership Agreement may be for enactment. In addition, the general partner may proposed by the general partner or by holders of a amend your partnership's agreement of limited Majority in Interest. Following such proposal, the partnership from time to time to add representations, general partner will submit any proposed amendment to duties or obligation of the general partner or to the OP Unitholders. The general partner will seek the surrender rights granted to the general partner, cure written consent of the OP Unitholders on the proposed any ambiguity or make modifications required by state amendment or will call a meeting to vote thereon. See or Federal securities law. Notwithstanding the "Description of OP Units -- Amendment of the AIMCO foregoing, certain provisions of your partnership's Operating Partnership Agreement" in the accompanying agreement of limited partnership are not subject to Prospectus. amendment in any case.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives an annual management fee equal to the greater capacity as general partner of the AIMCO Operating of an amount equal to 7.5% of the Net Cash Flow or Partnership. In addition, the AIMCO Operating Part- $10,000, payable monthly in addition to other fees for nership is responsible for all expenses incurred additional services. Moreover, the general partner or relating to the AIMCO Operating Partnership's ownership certain affiliates may be entitled to compensation for of its assets and the operation of the AIMCO Operating additional services rendered. 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-64 1971 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors No limited partner is subject to assessment, nor is any Except for fraud, willful misconduct or gross limited partner personally liable for any of the debts negligence, no OP Unitholder has personal liability for of your partnership or any of losses except to the the AIMCO Operating Partnership's debts and extent of its capital contributions which have become obligations, and liability of the OP Unitholders for payable pursuant to your partnership's agreement of the AIMCO Operating Partnership's debts and obligations limited partnership. 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 The general partner of your partnership must manage and Unless otherwise provided for in the relevant control the affairs of your partnership to the best of partnership agreement, Delaware law generally requires its ability and use its best efforts to carry out the a general partner of a Delaware limited partnership to purposes of your partnership. The general partner must adhere to fiduciary duty standards under which it owes diligently and faithfully devote such of its time to its limited partners the highest duties of good faith, the business of your partnership and has 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 your partnership and cannot employ or any transaction as to which it has a conflict of permit another to employ such funds or assets in a interest. The AIMCO Operating Partnership Agreement manner except for the exclusive benefit of your expressly authorizes the general partner to enter into, partnership. However, the general partner may engage or on behalf of the AIMCO Operating Partnership, a right hold interest in other business ventures of every kind of first opportunity arrangement and other conflict and description, including ventures in competition with avoidance agreements with various affiliates of the your partnership, in which neither your partnership nor AIMCO Operating Partnership and the general partner, on any limited partners will have any interest. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 1972 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, the limited applicable law or in the AIMCO ship Agreement, the OP Unitholders partners have voting rights only Operating Partnership Agreement, have voting rights only with with respect to the following the holders of the Preferred OP respect to certain limited matters issues: the sale of or other dispo- Units will have the same voting such as certain amendments and sition of all or substantially all rights as holders of the Common OP termination of the AIMCO Operating of the assets of your partnership, Units. See "Description of OP Partnership Agreement and certain the sale of your partnership's Units" in the accompanying transactions such as the interest in La Colina Ranch Prospectus. So long as any institution of bankruptcy Apartments Ltd. to any general Preferred OP Units are outstand- proceedings, an assignment for the partner, a limited partner or any ing, in addition to any other vote benefit of creditors and certain of their affiliates, any amendments or consent of partners required by transfers by the general partner of to your partnership's agreement of law or by the AIMCO Operating its interest in the AIMCO Operating limited partnership, except Partnership Agree- Part-
S-66 1973 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS in certain circumstances, the ment, the affirmative vote or nership or the admission of a termination of your partnership, consent of holders of at least 50% successor general partner. the removal of a general partner, of the outstanding Preferred OP the substitution of a general Units will be necessary for Under the AIMCO Operating Partner- partner and the substitution or effecting any amendment of any of ship Agreement, the general partner addition of a general partner the provisions of the Partnership has the power to effect the absent approval by the remaining Unit Designation of the Preferred acquisition, sale, transfer, general partner. Each matter OP Units that materially and exchange or other disposition of requires the approval of holders of adversely affects the rights or any assets of the AIMCO Operating a majority of the outstanding preferences of the holders of the Partnership (including, but not units, except that the removal of a Preferred OP Units. The creation or limited to, the exercise or grant general partner and the election of issuance of any class or series of of any conversion, option, a substitute or additional gen- partnership units, including, privilege or subscription right or eral partner without the consent of without limitation, any partner- any other right available in the existing general partner ship units that may have rights connection with any assets at any requires the unanimous consent of senior or superior to the Preferred time held by the AIMCO Operating all limited partners. OP Units, shall not be deemed to Partnership) or the merger, materially adversely affect the consolidation, reorganization or The general partner may cause the rights or preferences of the other combination of the AIMCO dissolution of your partnership by holders of Preferred OP Units. With Operating Partnership with or into retiring unless, the remaining respect to the exercise of the another entity, all without the general partner, or if none, more above described voting rights, each consent of the OP Unitholders. than 50% of the holders of the then Preferred OP Units shall have one outstanding units consent within (1) vote per Preferred OP Unit. The general partner may cause the sixty days after the retirement to dissolution of the AIMCO Operating continue your partnership and elect Partnership by an "event of a successor general partner. 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. The general adjust the annual distribution rate the AIMCO Operating Partnership partner will designate a record on the Preferred OP Units to the during such quarter to the general date to determine the partners lower of (i) % plus the annual partner, the special limited entitled to cash distributions, interest rate then applicable to partner and the holders of Common which is not less than five days U.S. Treasury notes with a maturity OP Units on the record date nor more than thirty days before of five years, and (ii) the annual established by the general partner each cash distribution. Your dividend rate on the most recently with respect to such quarter, in partnership has made distributions issued AIMCO non-convertible accordance with their respective in the past and is projected to preferred stock which ranks on a interests in the AIMCO Operating make distributions in 1998. parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-67 1974 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 transfer There is no public market for the There is no public market for the or assign any or any portion of his Preferred OP Units and the OP Units. The AIMCO Operating Part- interest in his limited partnership Preferred OP Units are not listed nership Agreement restricts the interest unless the general partner on any securities exchange. The transferability of the OP Units. consents (which consent may be Preferred OP Units are subject to Until the expiration of one year withheld at the sole discretion of restrictions on transfer as set from the date on which an OP the general partner) and the forth in the AIMCO Operating Unitholder acquired OP Units, limited partner complies with Partnership Agreement. subject to certain exceptions, such applicable state and Federal OP Unitholder may not transfer all securities laws. Notwithstanding Pursuant to the AIMCO Operating or any portion of its OP Units to the foregoing, a limited partner Partnership Agreement, until the any transferee without the consent may gratuitously transfer all or expiration of one year from the of the general partner, which any portion of his interest in his date on which a holder of Preferred consent may be withheld in its sole limited partnership interest to his OP Units acquired Preferred OP and absolute discretion. After the spouse, any member of his family, a Units, subject to certain expiration of one year, such OP trust for the benefit of those exceptions, such holder of Unitholder has the right to individuals or a corporation in Preferred OP Units may not transfer transfer all or any portion of its which such partner has a majority all or any portion of its Pre- OP Units to any person, subject to interest. No assignment or trans- ferred OP Units to any transferee the satisfaction of certain fers will be permitted if such without the consent of the general conditions specified in the AIMCO assignment of transfer would result partner, which consent may be Operating Partnership Agreement, in 50% or more of the limited withheld in its sole and absolute including the general partner's partnership interest being as- discretion. After the expiration of right of first refusal. See signed or transferred within any one year, such holders of Preferred "Description of OP Units -- twelve-month period. In order for a OP Units has the right to transfer Transfers and Withdrawals" in the transferee to be substituted as a all or any portion of its Preferred accompanying Prospectus. limited partner, in addition to the OP Units to any person, subject to above requirements: (1) a the satisfaction of
S-68 1975 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS fully executed and acknowledged certain conditions specified in the After the first anniversary of written instrument of assignment AIMCO Operating Partnership Agree- becoming a holder of Common OP must be filed with your ment, including the general Units, an OP Unitholder has the partnership, (2) the interest partner's right of first refusal. right, subject to the terms and transferred must be at least one conditions of the AIMCO Operating unit, except in certain After a one-year holding period, a Partnership Agreement, to require circumstances, (3) the transfer holder may redeem Preferred OP the AIMCO Operating Partnership to fees must be paid and (4) such Units and receive in exchange redeem all or a portion of the other conditions as are set forth therefor, at the AIMCO Operating Common OP Units held by such party in your partnership's agreement of Partnership's option, (i) subject in exchange for a cash amount based limited partnership must be to the terms of any Senior Units, on the value of shares of Class A fulfilled. cash in an amount equal to the Common Stock. See "Description of Liquidation Preference of the OP Units -- Redemption Rights" in There are no redemption rights Preferred OP Units tendered for the accompanying Prospectus. Upon associated with your units. redemption, (ii) a number of shares receipt of a notice of redemption, of Class I Cumulative Preferred the general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 1976 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 the greater of an amount equal to 7.5% of the Net Cash Flow or $10,000, payable monthly in addition to reimbursement for expenses generated in its capacity as general partner, which received management fees of 80,878 in 1996, 83,502 in 1997 and 44,072 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's 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'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 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-70 1977 YOUR PARTNERSHIP GENERAL La Colina Partners, Ltd. is a California limited partnership which raised net proceeds of approximately $2,548,000 in 1983 through a private offering. The promoter for the private offering of your partnership was Angeles Properties, Inc. Insignia acquired your partnership in November 1992. AIMCO acquired Insignia in October, 1998. There are currently a total of 51 limited partners of your partnership and a total of 52 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on January 1, 1993 for the purpose of owning and operating a single apartment property located in Denton, Texas, known as "La Colina Ranch Apartments." Your partnership's property consists of 264 apartment units. There are 112 one-bedroom apartments and 152 two-bedroom apartments. The total rentable square footage of your partnership's property is 194,304 square feet. Your partnership's property had an average occupancy rate of approximately 98.11% in 1996 and 98.11% in 1997. The average annual rent per apartment unit is approximately $6,054. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1992, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $80,878, $83,502 and $44,072, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2023 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 1978 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $5,014,155, payable to FNMA, which bears interest at a rate of 7.83%. The mortgage debt is due in October 2003. Your partnership also has a second mortgage note outstanding of $163,710, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. The Financial Statements have been prepared on an income tax basis. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 1979 Below is selected financial information for La Colina Partners, Ltd. derived from the financial statements described above. The 1993 amounts have been derived from audited financial which are not included in this Prospectus Supplement. See "Index to Financial Statements."
LA COLINA PARTNERS, LTD. ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... 646,622 1,189,039 522,599 1,197,289 1,054,351 453,595 314,284 Land & Building.............. 5,747,515 5,674,833 5,708,625 5,558,406 5,500,644 5,597,351 5,554,435 Accumulated Depreciation..... (4,840,729) (4,818,548) (4,829,638) (4,807,456) (4,790,604) (4,952,545) (4,886,878) Other Assets................. 707,356 731,585 796,105 769,211 791,401 827,751 817,380 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ 2,260,764 2,776,909 2,197,691 2,717,450 2,555,792 1,926,152 1,799,221 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... 5,117,342 5,175,045 5,152,338 5,747,001 5,796,983 5,841,983 5,901,227 Other Liabilities............ 199,543 930,819 297,101 487,439 394,850 322,242 223,199 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 5,316,885 6,105,864 5,449,439 6,234,440 6,191,833 6,164,225 6,124,426 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... (3,056,121) (3,328,955) (3,251,748) (3,516,990) (3,636,041) (4,238,073) (4,325,205) =========== =========== =========== =========== =========== =========== ===========
LA COLINA PARTNERS, LTD. ------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS Rental Revenue......................... 828,243 801,091 1,619,361 1,584,879 1,511,792 1,411,000 1,330,511 Other Income........................... 50,292 56,369 114,404 96,764 641,056 150,608 95,064 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Revenue................. 878,535 857,460 1,733,765 1,681,643 2,152,848 1,561,608 1,425,575 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Expenses..................... 349,534 310,583 687,976 799,570 606,324 645,316 1,162,320 General & Administrative............... 17,115 14,888 39,066 53,865 48,702 60,789 162,802 Depreciation........................... 11,091 11,091 22,182 16,852 12,569 65,667 63,315 Interest Expense....................... 203,517 237,122 505,679 508,941 520,959 550,242 502,113 Property Taxes......................... 101,651 95,741 193,620 182,364 157,568 152,462 155,230 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Expenses................ 682,908 669,425 1,448,523 1,561,592 1,346,122 1,474,476 2,045,780 -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income............................. 195,627 188,035 285,242 120,051 806,726 87,132 (620,205) ======== ======== ========== ========== ========== ========== ==========
S-73 1980 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $195,627 for the six months ended June 30, 1998, compared to $188,035 for the six months ended June 30, 1997, an increase in net income of $7,592, or 4.04%. This increase was primarily the result of a greater increase in revenue than in expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $878,535 for the six months ended June 30, 1998, compared to $857,460 for the six months ended June 30, 1997, an increase of $21,075, or 2.46%. Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $349,534 for the six months ended June 30, 1998, compared to $310,583 for the six months ended June 30, 1997, an increase of $38,951 or 12.54%. This increase is due primarily to an increase in non-capitalizable exterior maintenance and landscaping. Management expenses totaled $44,072 for the six months ended June 30, 1998, compared to $42,375 for the six months ended June 30, 1997, an increase of $1,697, or 4.00%. General and Administrative Expenses General and administrative expenses totaled $17,115 for the six months ended June 30, 1998 compared to $14,888 for the six months ended June 30, 1997, an increase of $2,227 or 14.96%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $203,517 for the six months ended June 30, 1998, compared to $237,122 for the six months ended June 30, 1997, a decrease of $33,605, or 14.17%. The decrease was due to the partnership's note payable to Angeles Acceptance pool being retired in the third quarter of 1997. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $285,242 for the year ended December 31, 1997, compared to $120,051 for the year ended December 31, 1996. The increase in net income of $165,191, or 137.60% was primarily the result of an increase in revenues and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,733,765 for the year ended December 31, 1997, compared to $1,681,643 for the year ended December 31, 1996, an increase of $52,122, or 3.10%. S-74 1981 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $687,976 for the year ended December 31, 1997, compared to $799,570 for the year ended December 31, 1996, a decrease of $111,594 or 13.96%. This is due to a reduction in non-capitalized exterior maintenance and landscaping. Management expenses totaled $83,502 for the year ended December 31, 1997, compared to $80,878 for the year ended December 31, 1996, an increase of $2,624, or 3.24%. General and Administrative Expenses General and administrative expenses totaled $39,066 for the year ended December 31, 1997 compared to $53,865 for the year ended December 31, 1996, a decrease of $14,799 or 27.47%. The decrease is primarily due to a decrease in General Partner reimbursement fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $505,679 for the year ended December 31, 1997, compared to $508,941 for the year ended December 31, 1996, a decrease of $3,262, or 0.64%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $120,051 for the year ended December 31, 1996, compared to $806,726 for the year ended December 31, 1995. The decrease in net income of $686,675, or 85.12% was primarily the result of decrease in revenues and an increase in expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,681,643 for the year ended December 31, 1996, compared to $2,152,848 for the year ended December 31, 1995, a decrease of $471,205, or 21.89%. The decrease is due to a large settlement of $544,116 related to an AMIT obligation recorded in income in 1995. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $799,570 for the year ended December 31, 1996, compared to $606,324 for the year ended December 31, 1995, an increase of $193,246 or 31.87%. This is primarily due to non-capitalized exterior repairs and major landscaping. Management expenses totaled $80,878 for the year ended December 31, 1996, compared to $78,348 for the year ended December 31, 1995, an increase of $2,530, or 3.23%. General and Administrative Expenses General and administrative expenses totaled $53,865 for the year ended December 31, 1996 compared to $48,702 for the year ended December 31, 1995, an increase of $5,163 or 10.60%. The increase is primarily due to a general increase to various administrative expenses. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $508,941 for the year ended December 31, 1996, compared to $520,959 for the year ended December 31, 1995, a decrease of $12,018, or 2.31%. S-75 1982 Liquidity and Capital Resources As of June 30, 1998, your partnership had $646,622 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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's agreement of limited partnership does not limit the liability of the general partners to your partnership or any limited partners for acts done in their capacity as general partner. The general partner of your partnership is owned by AIMCO. See "Conflicts of Interest." Under your partnership's agreement of limited partnership, the general partners of your partnership are indemnified for any loss or damage, including legal fees and expenses and amounts paid in settlement, incurred by such parties by reason of any act performed or omitted by such parties on behalf of your partnership or in furtherance of your partnership's interest, provided that the party sued will not be entitled to indemnification for losses sustained by reason of their gross negligence, willful misconduct or breach of fiduciary obligations. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $49,000.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 0.00 1995........................................................ 3,769.23 1996........................................................ 19.23 1997........................................................ 385.00 1998 (through June 30)...................................... 0.00
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). S-76 1983 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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........................................................ 29,166 1995........................................................ 42,281 1996........................................................ 45,370 1997........................................................ 39,929 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... 78,348 1996........................................... 80,878 1997........................................... 83,502 1998 (through June 30)......................... 44,072
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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-77 1984 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 -- income tax basis of La Colina Partners, Ltd. at December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-78 1985 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Statement of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of June 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Revenues and Expenses -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)............................................... F-3 Condensed Statements of Cash Flows -- Income Tax Basis for the six months ended June 30, 1998 and 1997 -- (unaudited)....................................... F-4 Notes to Condensed Financial Statements -- Income Tax Basis..................................................... F-5 Independent Auditors' Report................................ F-7 Consolidated Statement of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1997....... F-8 Consolidated Statement of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the year ended December 31, 1997................................... F-9 Consolidated Statement of Cash Flows -- Income Tax Basis for the year ended December 31, 1997.......................... F-10 Notes to Consolidated Financial Statements -- Income Tax Basis..................................................... F-11 Independent Auditors' Report................................ F-15 Consolidated Statement of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1996....... F-16 Consolidated Statement of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the year ended December 31, 1996................................... F-17 Consolidated Statement of Cash Flows -- Income Tax Basis for the year ended December 31, 1996.......................... F-18 Notes to Consolidated Financial Statements -- Income Tax Basis..................................................... F-19 Independent Auditors' Report................................ F-23 Consolidated Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1995 and 1994...................................................... F-24 Consolidated Statements of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1995 and 1994.......................... F-25 Consolidated Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1995 and 1994............ F-26 Notes to Consolidated Financial Statements -- Income Tax Basis..................................................... F-27
F-1 1986 LA COLINA PARTNERS, LIMITED CONDENSED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 646,622 Receivables and Deposits.................................... 133,198 Restricted Escrows.......................................... 117,792 Syndication Costs........................................... 333,392 Other Assets................................................ 122,974 Investment Property: Land...................................................... $ 546,579 Building and related personal property.................... 5,200,936 ----------- 5,747,515 Less: Accumulated depreciation............................ (4,840,729) 906,786 ----------- ----------- Total Assets:..................................... $ 2,260,764 =========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ 14,293 Other Accrued Liabilities................................... 40,754 Property Taxes Payable...................................... 101,651 Tenant Security Deposits.................................... 42,845 Notes Payable............................................... 5,117,342 Partners' Deficit........................................... (3,056,121) ----------- Total Liabilities and Partners' Deficit........... $ 2,260,764 ===========
See notes to interim financial statements. F-2 1987 LA COLINA PARTNERS, LIMITED CONDENSED STATEMENTS OF REVENUES AND EXPENSES -- INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $828,243 $801,091 Other Income.............................................. 50,292 56,369 -------- -------- Total Revenues.................................... 878,535 857,460 Expenses: Operating Expenses........................................ 349,534 310,583 General and Administrative Expenses....................... 17,115 14,888 Depreciation Expense...................................... 11,091 11,091 Interest Expense.......................................... 203,517 237,122 Property Tax Expense...................................... 101,651 95,741 -------- -------- Total Expenses.................................... 682,908 669,425 Net Income........................................ $195,627 $188,035 ======== ========
See notes to interim financial statements. F-3 1988 LA COLINA PARTNERS, LIMITED CONDENSED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 -------- ---------- Operating Activities: Net Income (loss)......................................... $195,627 $ 188,035 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 11,091 11,091 Changes in accounts: Receivables and deposits and other assets............ 91,349 89,128 Accounts Payable and accrued expenses................ (97,558) 443,380 -------- ---------- Net cash provided by (used in) operating activities...................................... 200,509 731,634 -------- ---------- Investing Activities: Property improvements and replacements.................... (38,890) (116,426) Net (increase)/decrease in restricted escrows............. (2,600) (2,342) -------- ---------- Net cash provided by (used in) investing activities...................................... (41,490) (118,768) -------- ---------- Financing Activities: Distributions to partners................................. -- -- Payments on mortgage...................................... (34,996) (571,956) -------- ---------- Net cash provided by (used in) financing activities...................................... (34,996) (571,956) -------- ---------- Net increase (decrease) in cash and cash equivalents..................................... 124,023 40,910 Cash and cash equivalents at beginning of year.............. 522,599 1,148,129 -------- ---------- Cash and cash equivalents at end of period.................. $646,622 $1,189,039 ======== ==========
See notes to interim financial statements. F-4 1989 LA COLINA PARTNERS, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS -- INCOME TAX BASIS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of La Colina Partners, Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with the accounting basis for Federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis for Federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 1990 LA COLINA PARTNERS, LIMITED CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 1991 INDEPENDENT AUDITORS' REPORT General Partners La Colina Partners, Limited: We have audited the consolidated statement of assets, liabilities and partners' deficit -- income tax basis of La Colina Partners, Limited (a limited partnership) and its limited partnership interest as of December 31, 1997, and the related consolidated statements of revenues and expenses and changes in partners' deficit -- income tax basis and cash flows -- income tax basis for the year then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note A, these consolidated financial statements were prepared on the basis of accounting La Colina Partners, Limited uses for Federal income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of La Colina Partners, Limited and its limited partnership interest as of December 31, 1997, and the results of their operations and their cash flows for the year then ended, on the basis of accounting described in Note A. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 13, 1998 F-7 1992 LA COLINA PARTNERS, LIMITED CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS ASSETS
DECEMBER 31, 1997 ------------ Cash and cash equivalents................................... $ 522,599 Receivables and deposits.................................... 217,907 Restricted escrows (Note B)................................. 115,192 Other assets................................................ 463,006 Investment properties (Note C): Land...................................................... 546,579 Buildings and related personal property................... 5,162,046 ----------- 5,708,625 Less accumulated depreciation............................. (4,829,638) ----------- 878,987 ----------- $ 2,197,691 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 20,214 Tenant security deposits.................................. 38,715 Accrued taxes............................................. 193,620 Other liabilities......................................... 44,552 Notes payable (Note C).................................... 5,152,338 Partners' deficit........................................... (3,251,748) ----------- $ 2,197,691 ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-8 1993 LA COLINA PARTNERS, LIMITED CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1997 ------------ Revenues: Rental income............................................. $ 1,619,361 Other income.............................................. 114,404 ----------- Total revenues......................................... 1,733,765 ----------- Expenses: Operating (Note D)........................................ 687,976 General and administrative (Note D)....................... 39,066 Depreciation.............................................. 22,182 Interest.................................................. 505,679 Property taxes............................................ 193,620 ----------- Total expenses......................................... 1,448,523 ----------- Net income.................................................. 285,242 Distributions to partners................................... (20,000) Partners' deficit at beginning of year...................... (3,516,990) ----------- Partners' deficit at end of year............................ $(3,251,748) ===========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-9 1994 LA COLINA PARTNERS, LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS -- INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1997 ------------ Cash flows from operating activities: Net income................................................ $ 285,242 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 22,182 Amortization of discounts and loan costs............... 37,846 Change in accounts: Receivables and deposits............................. 6,745 Other assets......................................... (6,640) Accounts payable..................................... (3,239) Tenant security deposit liabilities.................. (10,860) Accrued taxes........................................ 11,256 Other liabilities.................................... (187,495) ---------- Net cash provided by operating activities......... 155,037 ---------- Cash flows from investing activities: Property improvements and replacements.................... (150,219) Net deposits to restricted escrows........................ (4,735) ---------- Net cash used in investing activities............. (154,954) ---------- Cash flows from financing activities: Payments on notes payable................................. (605,613) Distributions to partners................................. (20,000) ---------- Net cash used in financing activities............. (625,613) ---------- Net decrease in cash and cash equivalents................... (625,530) Cash and cash equivalents at beginning of year.............. 1,148,129 ---------- Cash and cash equivalents at end of year.................... $ 522,599 ========== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 658,831 ==========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-10 1995 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of La Colina Partners, Limited (the "Partnership"), and its Limited Partnership interest in La Colina Ranch Apartments, Limited (the "Project Partnership"). The Partnership was organized solely to invest in the Project Partnership. The Project Partnership owns and operates a 264 unit apartment complex, located in Denton, Texas. The Partnership was organized as a California limited partnership on July 15, 1983. The Managing General Partner of the Partnership is Angeles Properties, Inc. ("API"). The non-managing general partners, who also serve as non-managing general partners of the Project Partnership, are the Elliott Family Partnership, Ltd. (a California limited partnership) and the Elliott Accommodation Trust (a California limited partnership). The general partners act as general partners in other limited partnerships and are affiliates of Angeles Investment Properties, Inc. ("AIPI"), the Project Partnership's managing general partner. Pursuant to the terms of the Agreement and Amended Certificate of Limited Partnership (the "Agreement"), the general partners have contributed $26,000 to the Partnership for which they are entitled to a 2% interest in the operating profits, losses, credits and cash distributions of the Partnership. Capital contributions of the limited partners aggregated $2,548,000. Pursuant to the terms of the Agreement, the limited partners will receive a 98% interest in the operating profits, losses, credits and cash distributions of the Partnership. The Partnership has made capital contributions to the Project Partnership and is entitled to a 98% interest in the operating profits, losses, credits and cash distributions of the Project Partnership. The Project Partnership's general partners are entitled to the remaining 2% of the same. Basis of Accounting The consolidated financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The consolidated financial statements represent the combination of both the Partnership and Project Partnership tax returns. The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, (3) syndication costs are carried at their original value, instead of being amortized over the estimated life of assets, and (4) income is recorded at the partnership level based on the partnership agreement and the Internal Revenue Code instead of being recorded based solely on the percentage of ownership interest. On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. F-11 1996 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Depreciation Depreciation is provided in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Other Assets Other assets at December 31, 1997 include deferred loan costs of $122,974, which are amortized over the term of the related borrowing. Deferred loan costs are shown net of accumulated amortization. Also included in other assets at December 31, 1997 are $333,392 of syndication fees which are not amortized. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 were $115,192 and consist of a reserve escrow established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- NOTES PAYABLE Notes payable at December 31, 1997 consist of the following:
1997 ---------- First mortgage note payable in monthly installments of $38,684, including interest at 7.83%, due October 15, 2003; collateralized by land and buildings................ $5,049,151 Second mortgage note payable in interest only monthly installments of $1,068, at a rate of 7.83%, with principal due October 15, 2003; collateralized by land and buildings................................................. 163,710 ---------- Principal balance at year end............................... 5,212,861 Less unamortized discount................................... (60,523) ---------- $5,152,338 ==========
Scheduled net principal payments of the notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 71,386 1999..................................................... 77,179 2000..................................................... 83,444 2001..................................................... 90,218 2002..................................................... 97,541 Thereafter............................................... 4,793,093 ---------- $5,212,861 ==========
F-12 1997 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership and the Project Partnership have no administrative or management employees and are dependent on the general partners for the management and administration of all partnership activities. The Project Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments of a partnership administration fee to general partners and reimbursement of certain expenses incurred by general partners on behalf of the Partnership and the Project Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 TYPE OF TRANSACTION AMOUNT ------------------- ------- Property management fee..................................... $83,502 Reimbursements for services of affiliates................... $32,910 Construction oversight reimbursements....................... $ 7,019
F-13 1998 LA COLINA PARTNERS, LIMITED CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 1999 INDEPENDENT AUDITORS' REPORT General Partners La Colina Partners, Limited: We have audited the consolidated statement of assets, liabilities and partners' deficit -- income tax basis of La Colina Partners, Limited (a limited partnership) and its limited partnership interest as of December 31, 1996, and the related consolidated statement of revenues and expenses and changes in partners' deficit -- income tax basis and cash flows -- income tax basis for the year then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note A, these consolidated financial statements were prepared on the basis of accounting La Colina Partners, Limited uses for Federal income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of La Colina Partners, Limited and its limited partnership interest as of December 31, 1996, and the results of their operations and their cash flows for the year then ended, on the basis of accounting described in Note A. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 17, 1997 F-15 2000 LA COLINA PARTNERS, LIMITED CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS ASSETS
DECEMBER 31, 1996 ------------ Cash and cash equivalents: Unrestricted.............................................. $ 1,148,129 Restricted -- tenant security deposits.................... 49,160 Accounts receivable......................................... 2,761 Escrow for taxes and insurance.............................. 172,731 Restricted escrows (Note B)................................. 110,457 Other assets................................................ 483,262 Investment properties (Note C): Land...................................................... 546,579 Buildings and related personal property................... 5,011,827 ----------- 5,558,406 Less accumulated depreciation............................. (4,807,456) ----------- 750,950 ----------- $ 2,717,450 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 23,453 Tenant security deposits.................................. 49,575 Accrued taxes............................................. 182,364 Other liabilities (Note C)................................ 232,047 Notes payable (Note C).................................... 5,747,001 Partners' deficit........................................... (3,516,990) ----------- $ 2,717,450 ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-16 2001 LA COLINA PARTNERS, LIMITED CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1996 ------------ Revenues: Rental income............................................. $ 1,584,879 Other income.............................................. 96,764 ----------- Total revenues......................................... 1,681,643 ----------- Expenses: Operating (Note D)........................................ 507,183 General and administrative (Note D)....................... 53,865 Maintenance............................................... 292,387 Depreciation.............................................. 16,852 Interest.................................................. 508,941 Property taxes............................................ 182,364 ----------- Total expenses......................................... 1,561,592 ----------- Net income.................................................. 120,051 Distributions to partners................................... (1,000) Partners' deficit at beginning of year...................... (3,636,041) ----------- Partners' deficit at end of year............................ $(3,516,990) ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-17 2002 LA COLINA PARTNERS, LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS -- INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1996 ------------ Cash flows from operating activities: Net income................................................ $ 120,051 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 16,852 Amortization of discounts and loan costs............... 36,167 Change in accounts: Restricted cash...................................... 2,989 Accounts receivable.................................. (1,029) Escrow for taxes and insurance....................... (10,549) Other assets......................................... -- Accounts payable..................................... 9,328 Tenant security deposit liabilities.................. (3,254) Accrued taxes........................................ 25,126 Other liabilities.................................... 61,388 ---------- Net cash provided by operating activities......... 257,069 ---------- Cash flows from investing activities: Property improvements and replacements.................... (57,762) Changes in restricted escrows............................. 8,688 ---------- Net cash used in investing activities............. (49,074) ---------- Cash flows from financing activities: Payments on notes payable................................. (61,068) Distributions to partners................................. (1,000) ---------- Net cash used in financing activities............. (62,068) ---------- Net increase in cash........................................ 145,927 Cash and cash equivalents at beginning of year.............. 1,002,202 ---------- Cash and cash equivalents at end of year.................... $1,148,129 ========== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 415,958 ==========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-18 2003 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 NOTE A ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of La Colina Partners, Limited (the "Partnership"), and its Limited Partnership interest in La Colina Ranch Apartments, Limited (the "Project Partnership"). The Partnership was organized solely to invest in the Project Partnership. The Project Partnership owns and operates a 264 unit apartment complex, located in Denton, Texas. The Partnership was organized as a California limited partnership on July 15, 1983. The Managing General Partner of the Partnership is Angeles Properties, Inc. ("API"). The non-managing general partners, who also serve as non-managing general partners of the Project Partnership, are the Elliott Family Partnership, Ltd. (a California limited partnership) and the Elliott Accommodation Trust (a California limited partnership). The general partners act as general partners in other limited partnerships and are affiliates of Angeles Investment Properties, Inc. ("AIPI"), the Project Partnership's managing general partner. Pursuant to the terms of the Agreement and Amended Certificate of Limited Partnership (the "Agreement"), the general partners have contributed $26,000 to the Partnership for which they are entitled to a 2% interest in the operating profits, losses, credits and cash distributions of the Partnership. Capital contributions of the limited partners aggregated $2,548,000. Pursuant to the terms of the Agreement, the limited partners will receive a 98% interest in the operating profits, losses, credits and cash distributions of the Partnership. The Partnership has made capital contributions to the Project Partnership and is entitled to a 98% interest in the operating profits, losses, credits and cash distributions of the Project Partnership. The Project Partnership's general partners are entitled to the remaining 2% of the same. Basis of Accounting The consolidated financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The consolidated financial statements represent the combination of both the Partnership and Project Partnership tax returns. The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, (3) syndication costs are carried at their original value, instead of being amortized over the estimated life of assets, and (4) income is recorded at the partnership level based on the partnership agreement and the Internal Revenue Code instead of being recorded based solely on the percentage of ownership interest. On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. F-19 2004 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Depreciation Depreciation is provided in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Other Assets Other assets at December 31, 1996 include deferred loan costs of $143,870, which are amortized over the term of the related borrowing. Deferred loan costs are shown net of accumulated amortization. Also included in other assets at December 31, 1996 are $333,392 of syndication fees which are not amortized. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 were $110,457 and consist of a reserve escrow established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- NOTES PAYABLE Notes payable at December 31, 1996 consist of the following:
1996 ---------- First mortgage note payable in monthly installments of $38,684, including interest at 7.83%, due October 15, 2003; collateralized by land and buildings................ $5,115,177 Second mortgage note payable in interest only monthly installments of $1,068, at a rate of 7.83%, with principal due October 15, 2003; collateralized by land and buildings................................................. 163,710 Note payable to Angeles Acceptance Pool, L.P., ("AAP"), an affiliate of API, represents an unsecured working capital loan with interest at prime plus 3% payable monthly with principal and any accrued interest to be repaid at the earlier of 1) the sale or refinancing of the investment property, or 2) November 25, 1997......................... 539,587 ---------- Principal balance at year end............................... 5,818,474 Less unamortized discount................................... (71,473) ---------- $5,747,001 ==========
Accrued interest on the note payable to AAP, which is included in other liabilities, amount to $190,997 at December 31, 1996. F-20 2005 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Scheduled net principal payments of the notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 605,613 1998..................................................... 71,385 1999..................................................... 77,180 2000..................................................... 83,445 2001..................................................... 90,218 Thereafter............................................... 4,890,633 ---------- $5,818,474 ==========
Subsequent to October 15, 1996, the principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. The unsecured note may be prepaid at any time in whole or in part without premium or penalty. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership and the Project Partnership have no administrative or management employees and are dependent on the general partners for the management and administration of all partnership activities. The Project Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments of a partnership administration fee to general partners and reimbursement of certain expenses incurred by general partners on behalf of the Partnership and the Project Partnership. Transactions with the Managing General Partner and its affiliates, in addition to those disclosed in Note C, are as follows:
1996 TYPE OF TRANSACTION AMOUNT ------------------- ------- Property management fee.................................... $80,878 Reimbursements for services of affiliates.................. $32,430 Construction fees.......................................... $12,940
F-21 2006 LA COLINA PARTNERS, LIMITED CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1995 AND 1994 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-22 2007 INDEPENDENT AUDITORS' REPORT General Partners La Colina Partners, Limited: We have audited the consolidated statements of assets, liabilities and partners' deficit -- income tax basis of La Colina Partners, Limited (a limited partnership) and its limited partnership interest as of December 31, 1995 and 1994, and the related consolidated statements of revenues and expenses and changes in partners' deficit -- income tax basis and cash flows -- income tax basis for the years then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note A, these consolidated financial statements were prepared on the basis of accounting La Colina Partners, Limited uses for Federal income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of La Colina Partners, Limited and its limited partnership interest as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended, on the basis of accounting described in Note A. /s/ KPMG PEAT MARWICK LLP March 4, 1996 F-23 2008 LA COLINA PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS ASSETS
DECEMBER 31, -------------------------- 1995 1994 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 1,002,202 $ 407,445 Restricted -- tenant security deposits.................... 52,149 46,150 Accounts receivable......................................... 1,732 670 Escrow for taxes and insurance.............................. 162,182 157,566 Restricted escrows (Note B)................................. 119,145 123,216 Other assets................................................ 508,342 546,299 Investment properties (Note C): Land...................................................... 546,579 546,579 Buildings and related personal property................... 4,954,065 5,050,772 ----------- ----------- 5,500,644 5,597,351 Less accumulated depreciation............................. (4,790,604) (4,952,545) ----------- ----------- 710,040 644,806 ----------- ----------- $ 2,555,792 $ 1,926,152 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 14,125 $ 20,374 Tenant security deposits.................................. 52,829 48,555 Accrued taxes............................................. 157,238 152,462 Other liabilities (Note C)................................ 170,658 100,851 Notes payable (Note C).................................... 5,796,983 5,841,983 Partners' deficit (3,636,041) (4,238,073) ----------- ----------- $ 2,555,792 $ 1,926,152 =========== ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-24 2009 LA COLINA PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS
YEARS ENDED DECEMBER 31, ---------------------------- 1995 1994 ----------- ----------- Revenues: Rental income............................................. $ 1,511,792 $ 1,411,000 Other income (Note E)..................................... 641,056 150,608 ----------- ----------- Total revenues......................................... 2,152,848 1,561,608 ----------- ----------- Expenses: Operating................................................. 418,323 429,411 General and administrative (Note D)....................... 48,702 60,789 Property management fees (Note D)......................... 78,348 74,170 Maintenance............................................... 109,653 141,735 Depreciation.............................................. 12,569 65,667 Interest.................................................. 520,959 550,242 Property taxes............................................ 157,568 152,462 ----------- ----------- Total expenses......................................... 1,346,122 1,474,476 ----------- ----------- Net income.................................................. 806,726 87,132 Distributions to partners................................... (204,694) -- Partners' deficit at beginning of year...................... (4,238,073) (4,325,205) ----------- ----------- Partners' deficit at end of year............................ $(3,636,041) $(4,238,073) =========== ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-25 2010 LA COLINA PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS
YEARS ENDED DECEMBER 31, ------------------------ 1995 1994 ----------- --------- Cash flows from operating activities: Net income................................................ $ 806,726 $ 87,132 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 12,569 65,667 Amortization of discounts and loan costs............... 36,565 36,412 Change in accounts: Restricted cash...................................... (5,999) (955) Accounts receivable.................................. (1,062) 2,135 Escrow for taxes and insurance....................... (4,616) (20,003) Other assets......................................... 12,876 (33,553) Accounts payable..................................... (6,249) 15,268 Tenant security deposit liabilities.................. 4,274 3,360 Accrued taxes........................................ 4,776 15,056 Other liabilities.................................... 69,807 63,508 ---------- -------- Net cash provided by operating activities......... 929,667 234,027 ---------- -------- Cash flows from investing activities: Property improvements and replacements.................... (77,803) (42,916) Changes in restricted escrows............................. 4,071 15,968 ---------- -------- Net cash used in investing activities............. (73,732) (26,948) ---------- -------- Cash flows from financing activities: Payments on notes payable................................. (56,484) (68,723) Distributions to partners................................. (204,694) -- ---------- -------- Net cash used in financing activities............. (261,178) (68,723) ---------- -------- Net increase in cash........................................ 594,757 138,356 Cash and cash equivalents at beginning of year.............. 407,445 269,089 Cash and cash equivalents at end of year.................... $1,002,202 $407,445 ========== ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 420,543 $431,744 ========== ========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-26 2011 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1995 AND 1994 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of La Colina Partners, Limited (the "Partnership"), and its Limited Partnership interest in La Colina Ranch Apartments, Limited (the "Project Partnership"). The Partnership was organized solely to invest in the Project Partnership. The Project Partnership owns and operates a 264 unit apartment complex, located in Denton, Texas. The Partnership was organized as a California limited partnership on July 15, 1983. The Managing General Partner of the Partnership is Angeles Properties, Inc. ("API"). The non-managing general partners, who also serve as non-managing general partners of the Project Partnership, are the Elliott Family Partnership, Ltd. (a California limited partnership) and the Elliott Accommodation Trust (a California limited partnership). The general partners act as general partners in other limited partnerships and are affiliates of Angeles Investment Properties, Inc. ("AIPI"), the Project Partnership's managing general partner. Pursuant to the terms of the Agreement and Amended Certificate of Limited Partnership (the "Agreement"), the general partners have contributed $26,000 to the Partnership for which they are entitled to a 2% interest in the operating profits, losses, credits and cash distributions of the Partnership. Capital contributions of the limited partners aggregated $2,548,000. Pursuant to the terms of the Agreement, the limited partners will receive a 98% interest in the operating profits, losses, credits and cash distributions of the Partnership. The Partnership has made capital contributions to the Project Partnership and is entitled to a 98% interest in the operating profits, losses, credits and cash distributions of the Project Partnership. The Project Partnership's general partners are entitled to the remaining 2% of the same. Basis of Accounting The consolidated financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The consolidated financial statements represent the combination of both the Partnership and Project Partnership tax returns. The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, (3) syndication costs are carried at their original value, instead of being amortized over the estimated life of assets, and (4) subsidiary income is recorded at the partnership level based on the partnership agreement and the Internal Revenue Code instead of being recorded based solely on the percentage of ownership interest. On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. F-27 2012 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Depreciation Depreciation is provided for in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Other Assets Other assets at December 31, 1995 and 1994 include deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Also included in other assets at December 31, 1995 and 1994 are $69,622 of syndication fees which are not amortized. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers cash and all highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Reclassifications Certain 1994 amounts have been reclassified to conform to the 1995 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrows at December 31, 1995 and 1994 consist of the following:
1995 1994 ---------- ---------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital reserve account to be used for certain capital improvements. The capital improvements are anticipated to be completed in calendar year 1996 and any excess funds will be returned for property operations....................................... $ 12,944 $ 16,110 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 106,201 107,106 ---------- ---------- $ 119,145 $ 123,216 ========== ==========
F-28 2013 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) NOTE C -- NOTES PAYABLE Notes payable at December 31, 1995 and 1994 consist of the following:
1995 1994 ---------- ---------- First mortgage note payable in monthly installments of $38,684, including interest at 7.83%, due October 15, 2003; collateralized by land and buildings................ $5,176,245 $5,232,729 Second mortgage note payable in interest only monthly installments of $1,068, at a rate of 7.83%, with principal due October 15, 2003; collateralized by land and buildings................................................. 163,710 163,710 Note payable to Angeles Acceptance Pool, L.P., ("AAP"), an affiliate of API, represents a working capital loan with interest at prime plus 3% payable monthly with principal and any accrued interest to be repaid at the earlier of 1) the sale or refinancing of the investment property, or 2) November 25, 1997......................................... 539,587 539,587 ---------- ---------- Principal balance at year end............................... 5,879,542 5,936,026 Less unamortized discount................................... (82,559) (94,043) ---------- ---------- $5,796,983 $5,841,983 ========== ==========
Accrued interest on the note payable to AAP, which is included in other liabilities, amounted to $130,181 and $66,330 at December 31, 1995 and 1994, respectively. Scheduled net principal payments of the notes during the years subsequent to December 31, 1995 are as follows: 1996..................................................... $ 61,069 1997..................................................... 605,613 1998..................................................... 71,385 1999..................................................... 77,180 2000..................................................... 83,445 Thereafter............................................... 4,980,850 ---------- $5,879,542 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to October 15, 1996. Thereafter, the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. The unsecured note may be prepaid at any time in whole or in part without premium or penalty. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership and the Project Partnership have no administrative or management employees and are dependent on the general partners for the management and administration of all partnership activities. The Project Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments of a partnership F-29 2014 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) administration fee to general partners and reimbursement of certain expenses incurred by general partners on behalf of the Partnership and the Project Partnership. Transactions with the Managing General Partner and its affiliates, except as disclosed in Note C, are as follows:
1995 1994 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- ------- ------- Property management fee.................................. $78,348 $74,170 Reimbursements for services of affiliates................ $26,389 $29,166 Construction fees........................................ $15,892 $ --
NOTE E -- BAD DEBT RECOVERY In July 1993, Angeles Mortgage Investment Trust ("AMIT"), a real estate investment trust, initiated litigation against the Partnership and other partnerships which loaned money to AMIT seeking to avoid repayment of such obligations. The Partnership subsequently filed a counterclaim against AMIT seeking to enforce the obligation, the principal amount of which is $650,000 plus accrued interest from March 1993 ("AMIT Obligation"). In 1993, the Partnership wrote off this receivable as a bad debt. MAE GP Corporation ("MAE GP"), an affiliate of the Managing General Partner, owns 1,675,113 Class B Shares of AMIT. MAE GP has the option to convert these Class B Shares, in whole or in part, into Class A Shares on the basis of 1 Class A Share for every 49 Class B Shares. These Class B Shares entitle MAE GP to receive 1.2% of the distributions of net cash distributed by AMIT. These Class B Shares also entitle MAE GP to vote on the same basis as Class A Shares which allows MAE GP to vote approximately 37% of the total shares (unless and until converted to Class A Shares at which time the percentage of the vote controlled represented by the shares held by MAE GP would approximate 1.2% of the vote). Between the date of acquisition of these shares (November 24, 1992) and March 31, 1995, MAE GP has declined to vote these shares. Since that date, MAE GP voted its shares at the 1995 annual meeting in connection with the election of trustees and other matters. MAE GP has not exerted and continues to decline to exert any management control over or participate in the management of AMIT. MAE GP may choose to vote these shares as it deems appropriate in the future. In addition, Liquidity Assistance, LLC, ("LAC"), an affiliate of the Managing General Partner and an affiliate of Insignia Financial Group, Inc., which provides property management and partnership administration services to the Partnership, owns 63,200 Class A Shares of AMIT. These Class A Shares entitle LAC to vote approximately 1.5% of the total shares. On November 9, 1994, the Partnership executed a definitive Settlement Agreement to settle the dispute with respect to the AMIT Obligation. The actual closing of the Settlement occurred April 14, 1995. The Partnership's claim was satisfied by a cash payment to the Partnership totaling $544,116 (the "Settlement Amount") at closing. Income was recorded in 1995 equal to the cash payment and is included in other income. As part of the above described settlement, MAE GP granted to AMIT an option to acquire the Class B shares owned by it. This option can be exercised at the end of 10 years or when all loans made by AMIT to partnerships affiliated with MAE GP as of November 9, 1994, which is the date of execution of the Settlement Agreement, have been paid in full, but in no event prior to November 9, 1997. AMIT delivered to MAE GP cash in the sum of $250,000 at closing, which occurred April 14, 1995, as payment for the option. Upon exercise of the option, AMIT would remit to MAE GP an additional $94,000. F-30 2015 LA COLINA PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Simultaneously with the execution of the option agreement, MAE GP executed an irrevocable proxy in favor of AMIT the result of which is MAE GP will be able to vote the Class B shares on all matters except those involving transactions between AMIT and MAE GP affiliated borrowers or the election of any MAE GP affiliate as an officer or trustee of AMIT. On those matters, MAE GP granted to the AMIT trustees, in their capacity as trustees of AMIT, proxies with regard to the Class B shares instructing such trustees to vote said Class B shares in accordance with the vote of the majority of the Class A Shares voting to be determined without consideration of the votes of "Excess Class A Shares" as defined in section 6.13 of the Declaration of Trust of AMIT. F-31 2016 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 2017 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 2018 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 September , 1998 A-3 2019 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF LAKE EDEN 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 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 TENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS. FAIRNESS TO YOU OF THE OFFER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 2020 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-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 Lake Eden Associates, 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-29 Expected Benefits of the Offer............... S-30 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-35 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
PAGE ---- Effects of the Offer......................... S-40 Certain Legal Matters........................ S-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41 DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67
i 2021
PAGE ---- CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71 YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72 Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-73 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership............. S-75
PAGE ---- Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions and Transfers of Units......... S-77 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 2022 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 Lake Eden Associates, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 the managing general partner (the "general partner") of your partnership 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 2023 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 2024 - 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 $1,319.86 per unit for the six months ended June 30, 1998 (equivalent to $2,639.72 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 distributions of $ 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 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 2025 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2026 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 100% of 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? 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: 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. 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-5 2027 (This page intentionally left blank) S-6 2028 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. 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. 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 5 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. 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 S-7 2029 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 2030 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 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 S-9 2031 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 2032 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, 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. 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 S-11 2033 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 2034 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. 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." S-13 2035 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 S-14 2036 - 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 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 CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. S-15 2037 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 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. In reaching the capitalization rate, we considered your property's physical condition, location, and above-average 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 own 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. S-16 2038 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, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 is not subject to such limitations. 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 2039 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 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 generated in that capacity from your partnership. The property manager received management fees of $104,498 in 1996, $111,851 in 1997 and $54,902 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 Your Partnership and its Property. Lake Eden Associates, L.P. is a Delaware limited partnership which was formed on January 11, 1985 for the purpose of owning and operating a single apartment property located in Columbus, Ohio, known as "Lake Eden/Lebanon Station Apartments". In 1985, it completed a private placement of units that raised net proceeds of approximately $2,045,000. Your partnership has no employees. Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. 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. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2008, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. S-18 2040 Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $7,041,590, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $250,216, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loans outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2041 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 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 2042
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 2043 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 the 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 2044
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 2045 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 2046 SUMMARY FINANCIAL INFORMATION OF LAKE EDEN ASSOCIATES, L.P. The summary financial information of Lake Eden Associates, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Lake Eden Associates, L.P. 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 of Your Partnership" included herein. See "Index to Financial Statements." LAKE EDEN ASSOCIATES, L.P.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues......... 1,090,117 1,105,569 2,249,681 2,115,254 2,075,758 2,018,815 1,955,707 Net Income/(Loss)...... 117,218 76,594 252,740 48,490 144,148 (204,553) (243,914) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation... 2,821,493 2,703,392 2,856,193 2,708,827 2,758,941 2,802,668 3,143,200 Total Assets........... 3,648,988 3,621,263 3,925,746 3,825,929 3,977,920 3,971,190 4,310,476 Mortgage Notes Payable, including Accrued Interest................... 6,999,503 7,173,872 7,088,397 7,245,235 7,388,963 7,520,678 7,641,385 Partners' Capital/(Deficit).......... (3,575,771) (3,816,488) (3,640,342) (3,829,695) (3,785,885) (3,892,146) (3,619,432)
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 YOUR 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 $
S-25 2047 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. 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 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 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, 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 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. S-26 2048 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 Code. 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 therefore 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 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. 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 S-27 2049 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 $1,319.86 (equivalent to $2,639.72 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 an 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, Moody's Investors Service revised its outlook for the ratings of AIMCO from stable to negative to reflect its concerns S-28 2050 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. Moody's 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 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 2051 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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. S-30 2052 - 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 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 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 2053 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 and the expiration of the offer. See "Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. S-32 2054 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 2055 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. 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. S-34 2056 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." 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. 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. S-35 2057 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, (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 considerations 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 9:00 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 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, Denver, Colorado time. S-36 2058 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 2059 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. 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 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 S-38 2060 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 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 S-39 2061 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 2062 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. 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. 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-41 2063 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-42 2064 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 payment. 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 OP Units and any such S-43 2065 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-44 2066 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-45 2067 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-46 2068 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-47 2069 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-48 2070 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-49 2071 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 2072 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-51 2073 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 2074 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your property's physical condition, location, and above-average 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 2075 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 2076 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 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, a third party expert, 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 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 $1,319.86 (equivalent to $2,639.72 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 an 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." 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-55 2077 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-56 2078 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. 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-57 2079 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-58 2080 performed a site inspection 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 September 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 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 property was 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 S-59 2081 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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 S-60 2082 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-61 2083 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Lake Eden/ Lebanon Station Apartments. 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 Available 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 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 purchase, hold, The purpose of the AIMCO Operating Partnership is to lease, manage and operate your partnership's property. conduct any business that may be lawfully conducted by Subject to restrictions contained in your partnership's a limited partnership organized pursuant to the agreement of limited partnership, your partnership may Delaware Revised Uniform Limited Partnership Act (as perform all acts necessary or appropriate in connection amended from time to time, or any successor to such therewith and reasonably related thereto, including statute) (the "Delaware Limited Partnership Act"), acquiring additional real or personal property, provided that such business is to be conducted in a 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-62 2084 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 35.5 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. 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 sets forth contracts that are to be made with the funds or other assets to its subsidiaries or other general partner and affiliates of the general partner. persons in which it has an equity investment, and such In addition, the general partner may make loans to your persons may borrow funds from the AIMCO Operating partnership in such sums as the general partner deems Partnership, on terms and conditions established in the appropriate and necessary for the conduct of your sole and absolute discretion of the general partner. To partnership's business. The terms and maturities of the extent consistent with the business purpose of the such loans must be reasonable as determined by the AIMCO Operating Partnership and the permitted general partner, interest charged cannot exceed the activities of the general partner, the AIMCO Operating greater of 2 1/2% over the base rate then being charged Partnership may transfer assets to joint ventures, by Third National Bank in Nashville or the interest limited liability companies, partnerships, rate paid by the general partner to a third party corporations, business trusts or other business lender for the funds and other charges and fees must be entities in which it is or thereby becomes a at least as favorable to your partnership as those participant upon such terms and subject to such negotiated by unaffiliated lenders on comparable loans conditions consistent with the AIMCO Operating Part- for the same purpose in the same locale. 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 on the credit of and enter into restrictions on borrowings, and the general partner has obligations on behalf of your partnership and to give full power and authority to borrow money on behalf of as security therefor any partnership's property. the AIMCO Operating Partnership. The AIMCO Operating However, the general partner may not incur any indebt- Partnership has credit agreements that restrict, among edness pursuant to a non-recourse loan if the creditor other things, its ability to incur indebtedness. See acquires, at any time as a result of making the loan, "Risk Factors -- Risks of Significant Indebtedness" in any direct or indirect interest in the profits, capital the accompanying Prospectus. or property of your partnership other than as a secured creditor.
S-63 2085 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 the limited partners to have access to the with a statement of the purpose of such demand and at current list of the names and addresses of all of the such OP Unitholder's own expense, to obtain a current limited partners at all reasonable times at the list of the name and last known business, residence or principal office of the general partners in Tennessee. mailing address of the general partner and each other OP Unitholder.
Management Control The general partner of your partnership has the All management powers over the business and affairs of exclusive power to manage and control your partnership the AIMCO Operating Partnership are vested in AIMCO-GP, and its business and affairs. The general partner has Inc., which is the general partner. No OP Unitholder all rights and power which may be possessed by general has any right to participate in or exercise control or partners under applicable laws and such additional management power over the business and affairs of the rights and power as necessary, advisable or convenient AIMCO Operating Partnership. The OP Unitholders have to the discharge of their duties under your the right to vote on certain matters described under partnership's agreement of limited partnership. A "Comparison of Ownership of Your Units and AIMCO OP limited partner may not take part in or interfere in Units -- Voting Rights" below. The general partner may any manner with the conduct or control of the business not be removed by the OP Unitholders with or without of your partnership and will have no right or authority cause. to act for or bind your partnership, except that limited partners may exercise the voting and other In addition to the powers granted a general partner of rights provided in this your partnership's agreement of a limited partnership under applicable law or that are limited partnership and under applicable laws. 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 to your partnership or any limited partner partner is not liable to the AIMCO Operating for any acts performed by it or any failure to act in Partnership for losses sustained, liabilities incurred the absence of gross negligence or willful malfea- or benefits not derived as a result of errors in sance. However, your partnership's agreement of limited judgment or mistakes of fact or law of any act or partnership does not provide for the indemnification of omission if the general partner acted in good faith. the general partner or its affiliates for any acts or The AIMCO Operating Partnership Agreement provides for omissions performed by them on behalf of your indemnification of AIMCO, or any director or officer of partnership. AIMCO (in its capacity as the previous general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware 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
S-64 2086 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 the has exclusive management power over the business and general partner for cause upon a vote of the limited affairs of the AIMCO Operating Partnership. The general partners owning a majority of the outstanding units. partner may not be removed as general partner of the The general partner may not transfer, assign, sell, AIMCO Operating Partnership by the OP Unitholders with withdraw or otherwise dispose of its interest unless it or without cause. Under the AIMCO Operating Partnership obtains the prior written consent of those persons Agreement, the general partner may, in its sole owning more than 50% of the units and satisfies other discretion, prevent a transferee of an OP Unit from conditions set forth in your partnership's agreement of becoming a substituted limited partner pursuant to the limited partnership. The consent of all limited AIMCO Operating Partnership Agreement. The general partners is necessary for the approval of a new general partner may exercise this right of approval to deter, partner. A limited partner may not transfer his delay or hamper attempts by persons to acquire a interests without the written consent of the general controlling interest in the AIMCO Operating Partner- 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 to add in the AIMCO Operating Partnership Agreement, whereby representations, duties or obligations of the general the general partner may, without the consent of the OP partner or its affiliates or to surrender any right or Unitholders, amend the AIMCO Operating Partnership power granted to them for the benefit of the limited Agreement, amendments to the AIMCO Operating partners, to cure any ambiguity or error and to admit Partnership Agreement require the consent of the additional or substitute limited partners. Other holders of a majority of the outstanding Common OP amendments of your partnership's agreement of limited Units, excluding AIMCO and certain other limited partnership may be proposed by the general partner. exclusions (a "Majority in Interest"). Amendments to Such proposals will be sent to the limited partners the AIMCO Operating Partnership Agreement may be together with a recommendation of the general partner proposed by the general partner or by holders of a as to the proposal. The general partner may require a Majority in Interest. Following such proposal, the response within a specified time not less than 30 days general partner will submit any proposed amendment to from the notice and failure to respond will constitute the OP Unitholders. The general partner will seek the a vote which is consistent with the general partners' written consent of the OP Unitholders on the proposed recommendation. Approval of such proposals must be amendment or will call a meeting to vote thereon. See given by the limited partners owning at least 51% of "Description of OP Units -- Amendment of the AIMCO the units. Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fees for its services as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to compensation for additional services nership is responsible for all expenses incurred rendered. 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-65 2087 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, limited partners are not 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 obligation of your partnership in excess of the limited obligations, and liability of the OP Unitholders for partners' capital contribution, except as provided by the AIMCO Operating Partnership's debts and obligations applicable law. 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 manage and partnership agreement, Delaware law generally requires control your partnership, its business and affairs to a general partner of a Delaware limited partnership to the best of their abilities and use their best efforts adhere to fiduciary duty standards under which it owes to carry out the business of your partnership. The its limited partners the highest duties of good faith, general partner must devote itself to the business of fairness and loyalty and which generally prohibit such your partnership to the extent that it, in its general partner from taking any action or engaging in discretion, deem necessary for the efficient carrying any transaction as to which it has a conflict of on thereof. The general partner must act as a fiduciary interest. The AIMCO Operating Partnership Agreement with respect to the safekeeping and use of the funds expressly authorizes the general partner to enter into, and assets of your partnership. However, the partners on behalf of the AIMCO Operating Partnership, a right may engage in whatever activities they choose, whether of first opportunity arrangement and other conflict or not it is in competition with your partnership, avoidance agreements with various affiliates of the without having or incurring any obligation to offer any AIMCO Operating Partnership and the general partner, on interest in such activities to your partnership and the such terms as the general partner, in its sole and partners and your partnership and the partners will absolute discretion, believes are advisable. The AIMCO have no rights in or to such independent business Operating Partnership Agreement expressly limits the ventures or the income and profits derived therefrom. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-66 2088 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 units the holders of the Preferred OP respect to certain limited matters and the consent of the general Units will have the same voting such as certain amendments and partners, the limited partners may 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 and terminate your partnership; Prospectus. So long as any institution of bankruptcy remove a general partner for cause Preferred OP Units are outstand- proceedings, an assignment for the without the consent of the general ing, in addition to any other vote benefit of creditors and certain partner; change the nature of your or consent of partners required by transfers by the general partner of partnership's business and approve law or by the AIMCO Operating its interest in the AIMCO Operating or Partnership Agree- Part-
S-67 2089 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS disapprove the sale of all or 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. The election of a of the outstanding Preferred OP substitute general partner requires Units will be necessary for Under the AIMCO Operating Partner- the approval of all of the limited effecting any amendment of any of ship Agreement, the general partner partners. 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 when there is no remaining preferences of the holders of the Partnership (including, but not general partner unless all of the Preferred OP Units. The creation or limited to, the exercise or grant limited partners elect a substitute issuance of any class or series of of any conversion, option, general partner within 90 days partnership units, including, privilege or subscription right or after the retirement of the general without limitation, any partner- any other right available in partner. 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 general partner makes $ per Preferred OP Unit; tribute quarterly all, or such distributions from Available Cash provided, however, that at any time portion as the general partner may Flow quarterly within 45 days after and from time to time on or after in its sole and absolute discretion the end of such quarter or at such the fifth anniversary of the issue determine, of Available Cash (as time or times as the general date of the Preferred OP Units, the defined in the AIMCO Operating partner deems practicable. The AIMCO Operating Partnership may Partnership Agreement) generated by 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. Your partner- dividend rate on the most recently with respect to such quarter, in ship has made distributions in the issued AIMCO non-convertible accordance with their respective past and is projected to made preferred stock which ranks on a interests in the AIMCO Operating distributions in 1998. parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-68 2090 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 and such Preferred OP Units and the OP Units. The AIMCO Operating Part- transferee will be substituted in Preferred OP Units are not listed nership Agreement restricts the place of the transferor if (1) such on any securities exchange. The transferability of the OP Units. sale is not of a fraction of a Preferred OP Units are subject to Until the expiration of one year unit, except in limited restrictions on transfer as set from the date on which an OP circumstances, (2) the transfer and forth in the AIMCO Operating Unitholder acquired OP Units, transferee execute, acknowledge and Partnership Agreement. subject to certain exceptions, such deliver to the general partner an OP Unitholder may not transfer all instrument evidencing the transfer, Pursuant to the AIMCO Operating or any portion of its OP Units to (3) the transferor pays a transfer Partnership Agreement, until the any transferee without the consent fee, (4) the general partner expiration of one year from the of the general partner, which consents to such transfer in date on which a holder of Preferred consent may be withheld in its sole writing, which consent will not be OP Units acquired Preferred OP and absolute discretion. After the granted if such transfer would: (a) Units, subject to certain expiration of one year, such OP result in the termination of your exceptions, such holder of Unitholder has the right to partnership for tax purposes, Preferred OP Units may not transfer transfer all or any portion of its result in your partnership being all or any portion of its Pre- OP Units to any person, subject to taxed as an association, (b) ferred OP Units to any transferee the satisfaction of certain violate any applicable securities without the consent of the general conditions specified in the AIMCO laws, (c) reduce the depreciation partner, which consent may be Operating Partnership Agreement, available to other partner or (d) withheld in its sole and absolute including the general partner's the units would not be a suitable discretion. After the expiration of right of first refusal. See investment for the transferee and one year, such holders of Preferred "Description of OP Units -- (5) the assignor and assignee have OP Units has the right to transfer Transfers and Withdrawals" in the complied with such other conditions all or any portion of its Preferred accompanying Prospectus. as set forth in your partnership's OP Units to any person, subject to agreement of limited the satisfaction of
S-69 2091 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS partnership. certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP There are no redemption rights ment, including the general Units, an OP Unitholder has the associated with your units. partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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 Part Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-70 2092 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 generated in that capacity from your partnership. The property manager received management fees of $104,498 in 1996, $111,851 in 1997 and $54,902 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's 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'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 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-71 2093 YOUR PARTNERSHIP GENERAL Lake Eden Associates, L.P. is a Delaware limited partnership which raised net proceeds of approximately $2,045,000 in 1985 through a private offering. The promoter for the private offering of your partnership was Jacques-Miller. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 64 limited partners of your partnership and a total of 35.3 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on January 11, 1985 for the purpose of owning and operating a single apartment property located in Columbus, Ohio, known as "Lake Eden/Lebanon Station Apartments." Your partnership's property consists of 387 apartment units. There are 184 one-bedroom apartments, 173 two-bedroom apartments and 30 three-bedroom apartments. The total rentable square footage of your partnership's property is 293,708 square feet. Your partnership's property had an average occupancy rate of approximately 96.90% in 1996 and 96.90% in 1997. The average annual rent per apartment unit is approximately $5,432. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $104,498, $111,851 and $54,902, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2008 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-72 2094 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $7,041,590, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $250,216, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 2095 Below is selected financial information for Lake Eden Associates, L.P. taken from the financial statements described above. See "Index to Financial Statements."
LAKE EDEN ASSOCIATES, L.P. ---------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA Cash and Cash Equivalents........... 116,610 279,320 527,854 490,515 498,480 205,832 288,458 Land & Building..................... 8,910,087 8,598,264 8,847,926 8,506,837 8,377,553 8,243,198 8,106,287 Accumulated Depreciation............ (6,088,595) (5,894,872) (5,991,733) (5,798,010) (5,618,612) (5,440,530) (4,963,087) Other Assets........................ 710,885 638,551 541,699 626,587 720,499 962,690 878,818 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Assets............... 3,648,988 3,621,263 3,925,746 3,825,929 3,977,920 3,971,190 4,310,476 ========== ========== ========== ========== ========== ========== ========== Mortgage & Accrued Interest......... 6,999,503 7,173,872 7,088,397 7,245,235 7,388,963 7,520,678 7,641,385 Other Liabilities................... 225,255 263,879 477,691 410,389 374,842 342,658 288,523 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Liabilities.......... 7,224,758 7,437,751 7,566,088 7,655,624 7,763,805 7,863,336 7,929,908 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Partners Capital (Deficit).......... (3,575,771) (3,816,488) (3,640,342) (3,829,695) (3,785,885) (3,892,146) (3,619,432) ========== ========== ========== ========== ========== ========== ==========
LAKE EDEN ASSOCIATES, L.P. --------------------------------------------------------------------------------- FOR THE SIX MONTHS FOR THE YEARS ENDED ENDED JUNE 30, DECEMBER 31, --------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS Rental Revenue............................. 1,023,476 1,035,153 2,112,517 2,003,086 1,952,779 1,891,415 1,851,266 Other Income............................... 66,641 70,416 137,164 112,168 122,979 127,400 104,441 --------- --------- --------- --------- --------- --------- --------- Total Revenue..................... 1,090,117 1,105,569 2,249,681 2,115,254 2,075,758 2,018,815 1,955,707 --------- --------- --------- --------- --------- --------- --------- Operating Expenses......................... 467,873 525,909 927,690 999,362 840,566 846,381 845,721 General & Administrative................... 43,187 32,754 59,886 59,403 56,641 71,578 73,921 Depreciation............................... 96,862 96,862 193,723 179,399 193,531 477,444 464,998 Interest Expense........................... 279,607 287,853 652,111 664,592 676,651 664,007 675,753 Property Taxes............................. 85,371 85,597 163,531 164,008 164,221 163,958 139,228 --------- --------- --------- --------- --------- --------- --------- Total Expenses.................... 972,900 1,028,975 1,996,941 2,066,764 1,931,610 2,223,368 2,199,621 --------- --------- --------- --------- --------- --------- --------- Net Income................................. 117,218 76,594 252,740 48,490 144,148 (204,553) (243,914) ========= ========= ========= ========= ========= ========= =========
S-74 2096 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $117,218 for the six months ended June 30, 1998, compared to $76,594 for the six months ended June 30, 1997. The increase in net income of $40,624, or 53.04% was primarily the result of a decrease in operating expenses partially offset by a slight decrease in total revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,090,117 for the six months ended June 30, 1998, compared to $1,105,569 for the six months ended June 30, 1997, a decrease of $15,452, or 1.40%. Expenses Operating expenses, consisting of, utilities net of reimbursements received from tenants, contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $467,873 for the six months ended June 30, 1998, compared to $525,909 for the six months ended June 30, 1997, a decrease of $58,036 or 11.04%. This decrease was primarily due to a decrease in exterior painting and other non-capitalizable property improvement expenses. Management expenses totaled $54,902 for the six months ended June 30, 1998, compared to $55,956 for the six months ended June 30, 1997, a decrease of $1,054, or 1.88%. General and Administrative Expenses General and administrative expenses totaled $43,187 for the six months ended June 30, 1998 compared to $32,754 for the six months ended June 30, 1997, an increase of $10,433 or 31.85%. The increase is primarily due to increases in asset management fees and general partner reimbursements. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $279,607 for the six months ended June 30, 1998, compared to $287,853 for the six months ended June 30, 1997, a decrease of $8,246, or 2.86%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $252,740 for the year ended December 31, 1997, compared to $48,490 for the year ended December 31, 1996. The increase in net income of $204,250, or 421.22% was primarily the result of an increase in rental revenue and other income and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,249,681 for the year ended December 31, 1997, compared to $2,115,254 for the year ended December 31, 1996, an increase of $134,427, or 6.36%. This increase was primarily the result of an increase in occupancy. S-75 2097 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $927,690 for the year ended December 31, 1997, compared to $999,362 for the year ended December 31, 1996, a decrease of $71,672 or 7.17%. This decrease was primarily due to a decrease in costs associated with non-capitalizable exterior improvements. Management expenses totaled $111,851 for the year ended December 31, 1997 compared to $104,498 for the year ended December 31, 1996. The increase of $7,353 or 7.04% is due to an increase in revenue as management fees are calculated based on a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $59,886 for the year ended December 31, 1997 compared to $59,403 for the year ended December 31, 1996, an increase of $483 or 0.81%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $652,111 for the year ended December 31, 1997, compared to $664,592 for the year ended December 31, 1996, a decrease of $12,481, or 1.88%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $48,490 for the year ended December 31, 1996 compared to $144,148 for the year ended December 31, 1995. The decrease of $95,658 or 66.36% was primarily due to an increase in operating expenses offset by an increase in total revenue. These factors will be discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,115,254 for the year ended December 31, 1996, compared to $2,075,758 for the year ended December 31, 1995, an increase of $39,496, or 1.90%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $999,362 for the year ended December 31, 1996,compared to $840,566 for the year ended December 31, 1995, an increase of $158,796 or 18.89%. This increase was primarily the result of an increase in exterior renovation expenditures. Management expenses totaled $104,498 for the year ended December 31, 1996, compared to $103,202 for the year ended December 31, 1995, an increase of $1,296, or 1.26%. General and Administrative Expenses General and administrative expenses totaled $59,403 for the year ended December 31, 1996 compared to $56,641 for the year ended December 31, 1995, an increase of $2,762 or 4.88%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $664,592 for the year ended December 31, 1996, compared to $676,651 for the year ended December 31, 1995, a decrease of $12,059, or 1.78%. S-76 2098 Liquidity and Capital Resources As of June 30, 1998, your partnership had $116,610 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 partners of your partnership are not liable to your partnership or any limited partner for any acts performed by any of them or any failure to act in the absence of gross negligence or willful malfeasance. 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 owned by AIMCO. See "Conflicts of Interest." Your partnership's agreement of limited partnership does not provide for the indemnification of the general partners or their affiliates for any acts or omissions performed by them on behalf of your partnership. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $1,800.00 1995........................................................ 1000.00 1996........................................................ 2,436.20 1997........................................................ 1,673.23 1998 (through June 30)...................................... 1,319.86
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions S-77 2099 (excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 1995......................... 0 1996......................... 0 1997......................... 0.5% 1.41% 1 1998 (through June 30)....... 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $46,540 1995........................................................ 51,604 1996........................................................ 67,256 1997........................................................ 67,076 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995............................................ $103,202 1996............................................ 104,498 1997............................................ 111,851 1998 (through June 30).......................... 54,902
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 company paid to the property manager or AIMCO and its affiliates. S-78 2100 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stranger's Fees............................................. $ Other....................................................... $
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 audited financial statements of Lake Eden Associates, L.P. at December 31, 1997, and December 31, 1996, and for the years then ended, appearing in this Prospectus Supplement have been audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-79 2101 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-10 Notes to Financial Statements............................... F-11 Independent Auditors' Report................................ F-15 Balance Sheets as of December 31, 1996 and 1995............. F-16 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-17 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-18 Notes to Financial Statements............................... F-19
F-1 2102 LAKE EDEN, LIMITED CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 116,610 Receivables and Deposits.................................... 59,389 Investments................................................. 0 Restricted Escrows.......................................... 419,863 Other Assets................................................ 231,634 Investment Property: Land................................................... $ 517,000 Building and related personal property................. 5,253,903 ----------- 8,393,087 Less: Accumulated depreciation......................... (6,088,595) 2,821,492 ----------- ----------- Total Assets:..................................... $ 3,648,988 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 60,288 Other Accrued Liabilities................................... 46,180 Property Taxes Payable...................................... 85,371 Tenant Security Deposits.................................... 57,542 Notes Payable............................................... 6,975,378 Partners' Capital........................................... (3,575,771) ----------- Total Liabilities and Partners' Capital........... $ 3,648,988 ===========
F-2 2103 LAKE EDEN, LIMITED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 ---------- ---------- Revenues: Rental Income............................................. $1,023,476 $1,035,153 Other Income.............................................. 66,641 70,416 ---------- ---------- Total Revenues:................................... 1,090,117 1,105,569 Expenses: Operating Expenses........................................ 467,873 525,909 General and Administrative Expenses....................... 43,187 32,754 Depreciation Expense...................................... 96,862 96,862 Interest Expense.......................................... 279,607 287,853 Property Tax Expense...................................... 85,371 85,597 ---------- ---------- Total Expenses:................................... 972,900 1,028,975 ---------- ---------- Net (Income) Loss................................. $ 117,217 $ 76,594 ========== ==========
F-3 2104 LAKE EDEN, LIMITED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDING JUNE 30, 1998 AND 1997
JUNE 30, JUNE 30, 1998 1997 -------- --------- Operating Activities: Net Income (loss)......................................... $117,217 $ 76,594 Adjustments to reconcile net income (loss)to net cash provided by operating Activities:...................... -- -- Depreciation and Amortization............................. 96,862 100,811 Changes in accounts:...................................... -- -- Receivables and deposits and other assets.............. 39,548 51,247 Accounts Payable and accrued expenses.................. (228,411) (122,384) -------- --------- Net cash provided by (used in) operating activities...................................... 25,216 106,268 -------- --------- Investing Activities Property improvements and replacements.................... (62,161) (91,427) Net (increase)/decrease in restricted escrows............. (7,771) (8,378) -------- --------- Net cash provided by (used in) investing activities...................................... (69,932) (99,805) -------- --------- Financing Activities Payments on mortgage...................................... (113,019) (95,488) Partners' Distributions................................... (52,545) (63,388) -------- --------- Net cash provided by (used in) financing activities...................................... (165,564) (158,876) -------- --------- Net increase (decrease) in cash and cash equivalents...... (210,280) (152,413) Cash and cash equivalents at beginning of year............ 326,890 431,733 -------- --------- Cash and cash equivalents at end of period........ $116,610 $ 279,320 ======== =========
F-4 2105 LAKE EDEN, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Lake Eden, Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 2106 LAKE EDEN, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 2107 INDEPENDENT AUDITORS' REPORT General Partners Lake Eden, Limited: We have audited the accompanying balance sheets of Lake Eden, Limited as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lake Eden, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP February 17, 1998 F-7 2108 LAKE EDEN, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 326,890 $ 431,733 Receivable and deposits..................................... 200,964 149,984 Restricted escrows (Note B)................................. 412,092 395,154 Other assets................................................ 129,607 140,231 Investment properties (Note C): Land...................................................... 517,000 517,000 Buildings and related personal property................... 8,330,926 7,989,837 ----------- ----------- 8,847,926 8,506,837 Less accumulated depreciation............................... (5,991,733) (5,798,010) ----------- ----------- 2,856,193 2,708,827 ----------- ----------- $ 3,925,746 $ 3,825,929 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 204,144 $ 138,257 Tenant security deposit liabilities....................... 62,794 58,782 Accrued taxes............................................. 162,611 163,042 Other liabilities......................................... 48,142 50,308 Mortgage notes payable (Note C)........................... 7,088,397 7,245,235 Partners' deficit........................................... (3,640,342) (3,829,695) ----------- ----------- $ 3,925,746 $ 3,825,929 =========== ===========
See Accompanying Notes to Financial Statements. F-8 2109 LAKE EDEN, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 2,112,517 $ 2,003,086 Other income.............................................. 137,164 112,168 ----------- ----------- Total revenues......................................... 2,249,681 2,115,254 ----------- ----------- Expenses: Operating (Note D)........................................ 927,690 999,362 General and administrative (Note D)....................... 59,886 59,403 Depreciation.............................................. 193,723 179,399 Interest.................................................. 652,111 664,592 Property taxes............................................ 163,531 164,008 ----------- ----------- Total expenses......................................... 1,996,941 2,066,764 ----------- ----------- Net income.................................................. 252,740 48,490 Distributions to partners................................... (63,387) (92,300) Partners' deficit at beginning of year...................... (3,829,695) (3,785,885) ----------- ----------- Partners' deficit at end of year............................ $(3,640,342) $(3,829,695) =========== ===========
See Accompanying Notes to Financial Statements. F-9 2110 LAKE EDEN, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 --------- --------- Cash flows from operating activities: Net income................................................ $ 252,740 $ 48,490 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 193,723 179,399 Amortization of discounts and loan costs............... 80,450 77,975 Change in accounts: Receivable and deposits.............................. (50,980) 70,925 Other assets......................................... (13,072) -- Accounts payable..................................... 65,887 87,068 Tenant security deposit liabilities.................. 4,012 (1,408) Accrued taxes........................................ (431) (160) Other liabilities.................................... (2,166) (49,953) --------- --------- Net cash provided by operating activities......... 530,163 412,336 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (341,089) (129,285) Net (deposits to) receipts from restricted escrows........ (16,938) 2,903 --------- --------- Net cash used in investing activities............. (358,027) (126,382) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (213,592) (198,007) Distributions to partners................................. (63,387) (92,300) --------- --------- Net cash used in financing activities............. (276,979) (290,307) --------- --------- Net decrease in cash and cash equivalents................... (104,843) (4,353) Cash and cash equivalents at beginning of year.............. 431,733 436,086 --------- --------- Cash and cash equivalents at end of year.................... $ 326,890 $ 431,733 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 571,661 $ 587,825 ========= =========
See Accompanying Notes to Financial Statements. F-10 2111 LAKE EDEN, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Lake Eden, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated January 11, 1985. The Partnership owns and operates a 387 unit apartment residential complex, Lake Eden/Lebanon Station Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include unamortized deferred loan costs of $116,535 and $140,231, respectively, which are amortized over the term of the related borrowing. They are presented net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-11 2112 LAKE EDEN, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Reserve Escrow -- A portion of the proceeds of the 1992 loan refinancing was placed into a reserve escrow. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan...... $412,092 $395,154 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $63,853, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $7,155,401 $7,368,993 Second mortgage note payable in interest only monthly installments of $1,585, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 250,216 250,216 ---------- ---------- Principal balance at year end............................... 7,405,617 7,619,209 Less unamortized discount................................... (317,220) (373,974) ---------- ---------- $7,088,397 $7,245,235 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 230,402 1999..................................................... 248,535 2000..................................................... 268,096 2001..................................................... 289,196 2002..................................................... 6,369,388 ---------- $7,405,617 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-12 2113 LAKE EDEN, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- -------- -------- Management fee......................................... $111,851 $104,498 Partnership administration fee......................... $ 20,469 $ 20,840 Reimbursement for services of affiliates............... $ 31,607 $ 30,763 Construction oversight costs........................... $ 15,000 $ 15,653
F-13 2114 LAKE EDEN, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 2115 INDEPENDENT AUDITORS' REPORT General Partners Lake Eden, Limited: We have audited the accompanying balance sheets of Lake Eden, Limited as of December 31, 1996 and 1995, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lake Eden, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP February 25, 1997 F-15 2116 LAKE EDEN, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 431,733 $ 436,086 Restricted -- tenant security deposits.................... 58,782 62,394 Accounts receivable......................................... 4,732 5,835 Escrow for taxes............................................ 86,470 152,680 Restricted escrows (Note B)................................. 395,154 398,057 Other assets................................................ 140,231 163,927 Investment properties (Note C): Land...................................................... 517,000 517,000 Buildings and related personal property................... 7,989,837 7,860,553 ----------- ----------- 8,506,837 8,377,553 Less accumulated depreciation............................. (5,798,010) (5,618,612) ----------- ----------- 2,708,827 2,758,941 ----------- ----------- $ 3,825,929 $ 3,977,920 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 138,257 $ 51,189 Tenant security deposits.................................. 58,782 60,190 Accrued taxes............................................. 163,042 163,202 Other liabilities......................................... 50,308 100,261 Mortgage notes payable (Note C)........................... 7,245,235 7,388,963 Partners' deficit........................................... (3,829,695) (3,785,885) ----------- ----------- $ 3,825,929 $ 3,977,920 =========== ===========
See Accompanying Notes to Financial Statements. F-16 2117 LAKE EDEN, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 2,003,086 $ 1,952,779 Other income.............................................. 112,168 122,979 ----------- ----------- Total revenues......................................... 2,115,254 2,075,758 ----------- ----------- Expenses: Operating (Note D)........................................ 675,927 666,596 General and administrative (Note D)....................... 59,403 56,641 Maintenance............................................... 323,435 173,970 Depreciation.............................................. 179,399 193,531 Interest.................................................. 664,592 676,651 Property taxes............................................ 164,008 164,221 ----------- ----------- Total expenses......................................... 2,066,764 1,931,610 ----------- ----------- Net income.................................................. 48,490 144,148 Distributions to partners................................... (92,300) (37,887) Partners' deficit at beginning of year...................... (3,785,885) (3,892,146) ----------- ----------- Partners' deficit at end of year............................ $(3,829,695) $(3,785,885) =========== ===========
See Accompanying Notes to Financial Statements. F-17 2118 LAKE EDEN, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Cash flows from operating activities: Net income................................................ $ 48,490 $ 144,148 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 179,399 193,531 Amortization of discounts and loan costs............... 77,975 75,540 Change in accounts: Restricted cash...................................... 3,612 539 Accounts receivable.................................. 1,103 (3,401) Escrow for taxes..................................... 66,210 214,247 Accounts payable..................................... 87,068 14,556 Tenant security deposit liabilities.................. (1,408) (5,166) Accrued taxes........................................ (160) 226 Other liabilities.................................... (49,953) 22,568 --------- --------- Net cash provided by operating activities......... 412,336 656,788 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (129,285) (149,804) Deposits to restricted escrows............................ (16,798) (16,503) Receipts from restricted escrows.......................... 19,701 24,153 --------- --------- Net cash used in investing activities............. (126,382) (142,154) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (198,007) (183,560) Distributions to partners................................. (92,300) (37,887) --------- --------- Net cash used in financing activities............. (290,307) 221,447 --------- --------- Net (decrease) increase in cash and cash equivalents........ (4,353) 293,187 Cash and cash equivalents at beginning of year.............. 436,086 142,899 --------- --------- Cash and cash equivalents at end of year.................... $ 431,733 $ 436,086 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 587,825 $ 601,692 ========= =========
See Accompanying Notes to Financial Statements. F-18 2119 LAKE EDEN, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Lake Eden, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated January 11, 1985. The Partnership owns and operates a 387 unit apartment residential complex, Lake Eden/ Lebanon Station Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1996 and 1995 consist of deferred loan costs which are amortized over the term of the related borrowing. They are presented net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. F-19 2120 LAKE EDEN, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. $395,154 $398,057 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $63,853, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $7,368,993 $7,567,000 Second mortgage note payable in interest only monthly installments of $1,585, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 250,216 250,216 ---------- ---------- Principal balance at year end............................... 7,619,209 7,817,216 Less unamortized discount................................... (373,974) (428,253) ---------- ---------- $7,245,235 $7,388,963 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 213,591 1998..................................................... 230,402 1999..................................................... 248,535 2000..................................................... 268,096 2001..................................................... 289,196 Thereafter............................................... 6,369,389 ---------- $7,619,209 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-20 2121 LAKE EDEN, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- -------- -------- Management fee......................................... $104,498 $103,202 Partnership administration fee......................... $ 20,840 $ 20,583 Reimbursement for services of affiliates............... $ 30,763 $ 28,725 Construction oversight fee............................. $ 15,653 $ 2,296
F-21 2122 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 2123 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 2124 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 September , 1998 A-3 2125 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF LANDMARK ASSOCIATES, 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 2126 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-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 Landmark Associates, 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-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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 Certain Tax Consequences to Non-Tendering and Partially-Tendering Unitholders............ S-53 VALUATION OF UNITS............................. S-54 FAIRNESS OF THE OFFER.......................... S-55 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-55 Fairness to Unitholders who Tender their Units...................................... S-56 Fairness to Unitholders who do not Tender their Units................................ S-57 Comparison of Consideration to Alternative Consideration.............................. S-57 Allocation of Consideration.................. S-58 STANGER ANALYSIS............................... S-58 Experience of Stanger........................ S-59 Summary of Materials Considered.............. S-59 Summary of Reviews........................... S-60 Conclusions.................................. S-60 Assumptions, Limitations and Qualifications............................. S-60 Compensation and Material Relationships...... S-61 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-72
i 2127
PAGE ---- YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72 Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-73 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77
PAGE ---- Distributions and Transfers of Units......... S-77 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 2128 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 Landmark Associates, 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 $3,972 million , total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 2129 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 2130 - 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 $246.13 per unit for the six months ended June 30, 1998 (equivalent to $492.26 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 quarter 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 distributions of $ 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 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 2131 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer 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. In addition, 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 of $ in cash per unit is fair. However, your units are not listed on any national securities exchange nor quoted on the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-4 2132 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 100% of 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? 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: 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 2133 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 2134 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. 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 date 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. 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 5 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. 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 S-7 2135 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. 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 Code. The particular tax consequences to you of the exchange 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 2136 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the 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 2137 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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 2138 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, 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 2139 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 2140 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 the opportunity to participate in the growth of our enterprise and would benefit from any future S-13 2141 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 2142 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 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 S-15 2143 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" OF 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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. S-16 2144 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 2145 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 is not subject to such limitations. 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 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 generated in that capacity. The property manager received management fees of $35,967 in 1996, $35,122 in 1997 and $16,115 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 Your Partnership and its Property. Landmark Associates, Ltd. is a Tennessee limited partnership which was formed on July 30, 1982 for the purpose of owning and operating a single apartment property located in S-18 2146 Florence, South Carolina, known as "Landmark Woods Apartments." In 1982, it completed a private placement of units that raised net proceeds of approximately $1,132,000. Landmark Woods Apartments consists of 104 apartment units. Your partnership has no employees. Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. 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. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2025, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,448,213, payable to State Street and Lehman, which bears interest at a rate of 7.29%. The mortgage debt is due in January 2028. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2147 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, 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 2148
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 2149 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 2150
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 2151 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 2152 SUMMARY FINANCIAL INFORMATION OF LANDMARK ASSOCIATES, LTD. The summary financial information of Landmark Associates, Ltd. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Landmark Associates, Ltd. for the years ended December 31, 1997 and 1996 and 1995 is derived from 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 of Your Partnership" included herein. See "Index to Financial Statements." LANDMARK ASSOCIATES, LTD.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ---------------------- ------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- --------- --------- ---------- ---------- ---------- ---------- Operating Data: Total Revenues.......................... 314,774 374,345 704,178 734,931 708,849 648,266 627,563 Net Income/(Loss)..................... 30,495 85,329 77,602 91,366 70,024 91,415 67,481 Balance Sheet Data: Real Estate, Net of Accumulated Depreciation........................ 781,258 790,940 776,688 803,479 812,154 834,210 868,854 Total Assets.................... 1,266,632 1,173,624 1,559,097 1,125,783 1,161,956 1,104,435 1,176,166 Mortgage Notes Payable, including Accrued Interest...................... 2,488,273 2,107,679 2,500,000 2,124,870 2,157,776 2,203,091 2,243,348 Partners' Capital/(Deficit)............. (1,266,633) (989,401) (997,128) (1,074,730) (1,066,103) (1,136,127) (1,137,462)
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 YOUR 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 $246.13 $0.00
S-25 2153 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. 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 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 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. S-26 2154 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 Code. 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 therefore 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 apartment property. In contrast, the AIMCO Operating Partnership is in the business of acquiring, S-27 2155 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, and distributions with respect to your units for the six months ended June, 1998 were $246.13 per unit (equivalent to $492.26 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 an 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 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 S-28 2156 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 prohibits any transfer of units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the offer. MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. S-29 2157 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 2158 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 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 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 2159 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 2160 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 2161 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. 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. S-34 2162 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." 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. 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. S-35 2163 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, (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 considerations 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 9:00 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 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, Denver, Colorado time. S-36 2164 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 2165 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. 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 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 S-38 2166 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 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 S-39 2167 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 2168 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. 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. 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-41 2169 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-42 2170 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 payment. 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 OP Units and any such S-43 2171 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-44 2172 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-45 2173 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-46 2174 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-47 2175 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-48 2176 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-49 2177 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 2178 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-51 2179 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 2180 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 UNITHOLDERS 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 unitholders who do not tender all of their units (a "Remaining Unitholders") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Unitholder will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Unitholders in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Unitholder'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 Unitholders 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 Unitholders 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 unitholder 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 unitholders. In the case of a Remaining Unitholder 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 unitholder's taxable income for the year of Termination. S-53 2181 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your property's physical condition, location, and above-average 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-54 2182 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-55 2183 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 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, a third party expert, 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 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 of $2.25 with respect to the Common OP Units and distributions with respect to your units for the six months ended June, 1998 were $246.13 (equivalent to $492.26 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 being offered are expected to be , immediately following the 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-56 2184 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 apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-57 2185 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. 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-58 2186 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-59 2187 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 September 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 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 property was 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, S-60 2188 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-61 2189 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 Tennessee law for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Landmark Woods Apartments. 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 Available 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 purchase, hold, The purpose of the AIMCO Operating Partnership is to lease, manage and operate your partnership's property. conduct any business that may be lawfully conducted by Subject to restrictions contained in your partnership's a limited partnership organized pursuant to the agreement of limited partnership, your partnership may Delaware Revised Uniform Limited Partnership Act (as perform all acts necessary, advisable or convenient to amended from time to time, or any successor to such the business of your partnership including acquiring statute) (the "Delaware Limited Partnership Act"), additional real or personal property, borrowing money provided that such business is to be conducted in a 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-62 2190 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 interest 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 1,132 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 sets forth agreements between your partnership and the funds or other assets to its subsidiaries or other general partner and certain of its affiliates for persons in which it has an equity investment, and such certain services provided by these parties to your persons may borrow funds from the AIMCO Operating partnership including property management services. 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 on the credit of and enter into restrictions on borrowings, and the general partner has obligations on behalf of your partnership in the full power and authority to borrow money on behalf of ordinary course of business. Indebtedness incurred the AIMCO Operating Partnership. The AIMCO Operating other than in the ordinary course of business and that Partnership has credit agreements that restrict, among associated with the purchase of your partnership's other things, its ability to incur indebtedness. See property requires the approval of the holders of "Risk Factors -- Risks of Significant Indebtedness" in greater than 50% of the outstanding units. Such the accompanying Prospectus. approval is also required for the incurrence on indebtedness pursuant to a non-recourse loan if the creditor will 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.
S-63 2191 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 the limited partners to have access to the with a statement of the purpose of such demand and at current list of the names and addresses of all of the such OP Unitholder's own expense, to obtain a current limited partners at all reasonable times at the list of the name and last known business, residence or principal office of the general partner in Tennessee. mailing address of the general partner and each other OP Unitholder.
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 your partnership the AIMCO Operating Partnership are vested in AIMCO-GP, and its business and affairs. The general partner will Inc., which is the general partner. No OP Unitholder have all the rights and powers which may be possessed has any right to participate in or exercise control or by a general partner under applicable law and such management power over the business and affairs of the additional rights and powers which are necessary, AIMCO Operating Partnership. The OP Unitholders have advisable or convenient to the discharge of its duties the right to vote on certain matters described under under your partnership's agreement of limited "Comparison of Ownership of Your Units and AIMCO OP partnership. Except as otherwise provided in your Units -- Voting Rights" below. The general partner may partnership's agreement of limited partnership, limited not be removed by the OP Unitholders with or without partners may not take part in nor interfere in any with cause. the conduct or control of the business of your partnership and have no right or authority to act for In addition to the powers granted a general partner of or bind your partnership. 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 to your partnership or any limited partner partner is not liable to the AIMCO Operating for any acts performed by any of it or any failure to Partnership for losses sustained, liabilities incurred act in the absence of gross negligence or willful or benefits not derived as a result of errors in malfeasance. However, your partnership's agreement of judgment or mistakes of fact or law of any act or limited partnership does not provide for the omission if the general partner acted in good faith. indemnification of the general partner or its The AIMCO Operating Partnership Agreement provides for affiliates for any acts or omissions performed by them indemnification of AIMCO, or any director or officer of on behalf of your partnership. AIMCO (in its capacity as the previous general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware 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
S-64 2192 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 the has exclusive management power over the business and general partner for cause upon a vote of the limited affairs of the AIMCO Operating Partnership. The general partners owning a majority of the outstanding units. partner may not be removed as general partner of the The general partner may not transfer, assign, sell, AIMCO Operating Partnership by the OP Unitholders with withdraw or otherwise dispose of its interest unless it or without cause. Under the AIMCO Operating Partnership obtains the prior written consent of those persons Agreement, the general partner may, in its sole owning more than 50% of the units and satisfies other discretion, prevent a transferee of an OP Unit from conditions set forth in your partnership's agreement of becoming a substituted limited partner pursuant to the limited partnership. The consent of all limited AIMCO Operating Partnership Agreement. The general partners is necessary for the approval of a new general partner may exercise this right of approval to deter, partner. A limited partner may not transfer his delay or hamper attempts by persons to acquire a interests without the consent of the general partner. 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 Amendments of your partnership's agreement of limited With the exception of certain circumstances set forth partnership may be proposed by the general partners. in the AIMCO Operating Partnership Agreement, whereby Such proposals will be sent to the limited partners the general partner may, without the consent of the OP together with a recommendation of the general partners Unitholders, amend the AIMCO Operating Partnership as to the proposal. The general partner may require a Agreement, amendments to the AIMCO Operating response within a specified time not less than 30 days Partnership Agreement require the consent of the from the notice and failure to respond will constitute holders of a majority of the outstanding Common OP a vote which is consistent with the general partners' Units, excluding AIMCO and certain other limited recommendation. Approval of such proposals must be exclusions (a "Majority in Interest"). Amendments to given by the limited partners owning at least 51% of the AIMCO Operating Partnership Agreement may be the units. proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fees for its services as general partner capacity as general partner of the AIMCO Operating but may receive reimbursement for expenses generated in Partnership. In addition, the AIMCO Operating Part- its capacity as general partner. Moreover, the general nership is responsible for all expenses incurred partner or certain affiliates may be entitled to relating to the AIMCO Operating Partnership's ownership compensation for additional services rendered. 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-65 2193 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, limited partners are not 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 the obligations, and liability of the OP Unitholders for limited partners' capital contribution, except as the AIMCO Operating Partnership's debts and obligations provided under applicable law. 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 manage and partnership agreement, Delaware law generally requires control your partnership, its business and affairs to a general partner of a Delaware limited partnership to the best of its ability and must use its best efforts adhere to fiduciary duty standards under which it owes to carry out the business of your partnership. The its limited partners the highest duties of good faith, general partner must devote itself to the business of fairness and loyalty and which generally prohibit such your partnership to the extent that it, in its general partner from taking any action or engaging in discretion, deems necessary for the efficient carrying any transaction as to which it has a conflict of on thereof. The general partner, at all times, has a interest. The AIMCO Operating Partnership Agreement fiduciary responsibility for the safekeeping and use of expressly authorizes the general partner to enter into, all partnership funds and assets. However, the partners on behalf of the AIMCO Operating Partnership, a right may engage in whatever activities they choose, whether of first opportunity arrangement and other conflict or not it is in competition with your partnership, avoidance agreements with various affiliates of the without having or incurring any obligation to offer any AIMCO Operating Partnership and the general partner, on interest in such activities to your partnership and the such terms as the general partner, in its sole and partners and your partnership and the partners will absolute discretion, believes are advisable. The AIMCO have no rights in and to such independent business Operating Partnership Agreement expressly limits the ventures or the income and profits derived therefrom. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-66 2194 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 dissolve and terminate your rights as holders of the Common OP termination of the AIMCO Operating partnership, remove a general Units. See "Description of OP Partnership Agreement and certain partner, approve or disapprove the Units" in the accompanying transactions such as the sale of all or substantially all of Prospectus. So long as any institution of bankruptcy the assets of your partnership and Preferred OP Units are outstand- proceedings, an assignment for the approve the incurrence of certain ing, in addition to any other vote benefit of creditors and certain indebtedness. The consent of all of or consent of partners required by transfers by the general partner of the limited partners is necessary law or by the AIMCO Operating its interest in the AIMCO Operating to elect a new gen- Partnership Agree- Part-
S-67 2195 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS eral partner. In order for the ment, the affirmative vote or nership or the admission of a limited partners to amend your consent of holders of at least 50% successor general partner. partnership's agreement of limited of the outstanding Preferred OP partnership, the limited partners Units will be necessary for Under the AIMCO Operating Partner- holding the amount of units effecting any amendment of any of ship Agreement, the general partner specified under Tennessee law is the provisions of the Partnership has the power to effect the required. Unit Designation of the Preferred acquisition, sale, transfer, OP Units that materially and exchange or other disposition of The general partner may cause the adversely affects the rights or any assets of the AIMCO Operating dissolution of your partnership by preferences of the holders of the Partnership (including, but not retiring when there is no remaining Preferred OP Units. The creation or limited to, the exercise or grant general partner unless all of the issuance of any class or series of of any conversion, option, limited partners elect a substitute partnership units, including, privilege or subscription right or general partner within 90 days without limitation, any partner- any other right available in after the retirement of the general ship units that may have rights connection with any assets at any partner. 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 Available Cash $ per Preferred OP Unit; tribute quarterly all, or such Flow (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 made in quarterly the fifth anniversary of the issue determine, of Available Cash (as installments within 45 days after date of the Preferred OP Units, the defined in the AIMCO Operating the end of such calendar quarter or AIMCO Operating Partnership may Partnership Agreement) generated by at such time or times as the adjust the annual distribution rate the AIMCO Operating Partnership general partner may deem practi- on the Preferred OP Units to the during such quarter to the general cal. The distributions payable to lower of (i) % plus the annual partner, the special limited the partners are not fixed in interest rate then applicable to partner and the holders of Common 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. Your preferred stock which ranks on a interests in the AIMCO Operating partnership has made distributions parity with its Class H Cumu- Partnership on such record date. in the past and is projected to Holders of any other Pre- made distributions in 1998.
S-68 2196 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 and such Preferred OP Units and the OP Units. The AIMCO Operating Part- transferee will be substituted in Preferred OP Units are not listed nership Agreement restricts the place of the transferor if (1) such on any securities exchange. The transferability of the OP Units. sale is not of a fraction of a Preferred OP Units are subject to Until the expiration of one year unit, except in limited restrictions on transfer as set from the date on which an OP circumstances, (2) the transfer and forth in the AIMCO Operating Unitholder acquired OP Units, transferee execute, acknowledge and Partnership Agreement. subject to certain exceptions, such deliver to the general partner OP Unitholder may not transfer all instruments evidencing the Pursuant to the AIMCO Operating or any portion of its OP Units to transfer, (3) the transferor pays a Partnership Agreement, until the any transferee without the consent transfer fee, (4) the general expiration of one year from the of the general partner, which partner consents to such transfer date on which a holder of Preferred consent may be withheld in its sole in writing, which consent will not OP Units acquired Preferred OP and absolute discretion. After the be granted if such transfer will Units, subject to certain expiration of one year, such OP result in your partnership being exceptions, such holder of Unitholder has the right to taxed as corporation or would Preferred OP Units may not transfer transfer all or any portion of its constitute a violation of any all or any portion of its Pre- OP Units to any person, subject to applicable securities laws and (5) ferred OP Units to any transferee the satisfaction of certain the assignor and assignee have without the consent of the general conditions specified in the AIMCO complied with such other conditions partner, which consent may be Operating Partnership Agreement, as set forth in your partnership's withheld in its sole and absolute including the general partner's agreement of limited partnership. discretion. After the expiration of right of first refusal. See one year, such holders of Preferred "Description of OP Units -- There are no redemption rights OP Units has the right to transfer Transfers and Withdrawals" in the associated with your units. all or any portion of its Preferred accompanying Prospectus. OP Units to any person, subject to the satisfaction of
S-69 2197 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-70 2198 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 generated in that capacity. The property manager received management fees of 35,967 in 1996, $35,112 in 1997 and 16,115 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's 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'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 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-71 2199 YOUR PARTNERSHIP GENERAL Landmark Associates, Ltd. is a Tennessee limited partnership which raised net proceeds of approximately $1,132,000 in 1982 through a private offering. The promoter for the private offering of your partnership was Jacques-Miller. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 35 limited partners of your partnership and a total of 1,132 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on July 30, 1982 for the purpose of owning and operating a single apartment property located in Florence, South Carolina, known as "Landmark Woods Apartments." Your partnership's property consists of 104 apartment units. There are 24 one-bedroom apartments, 56 two-bedroom apartments and 29 three-bedroom apartments. The total rentable square footage of your partnership's property is 100,472 square feet. The average annual rent per apartment unit is approximately $5,878. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $35,967, $35,112 and $16,115, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2025 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-72 2200 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,448,273, payable to State Street and Lehman, which bears interest at a rate of 7.29%. The mortgage debt is due in January 2028. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 2201 Below is selected financial information for Landmark Associates, Ltd. taken from the financial statements described above. See "Index to Financial Statements."
LANDMARK ASSOCIATES, LTD. ------------------------------------------------------------------------------------------ JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA Cash and Cash Equivalents........... 179,926 271,297 504,366 200,292 278,154 229,339 218,637 Land & Building..................... 2,896,279 2,850,759 2,864,107 2,835,697 2,789,354 2,761,024 2,747,351 Accumulated Depreciation............ (2,115,020) (2,059,819) (2,087,419) (2,032,218) (1,977,200) (1,926,814) (1,878,497) Other Assets........................ 305,448 111,387 278,043 122,012 71,648 40,886 88,675 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Assets............... 1,266,633 1,173,624 1,559,097 1,125,783 1,161,956 1,104,435 1,176,166 ========== ========== ========== ========== ========== ========== ========== Mortgage & Accrued Interest......... 2,488,273 2,107,679 2,500,000 2,124,870 2,157,776 2,203,091 2,243,348 Other Liabilities................... 44,993 55,347 56,225 75,643 70,283 37,471 70,280 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Liabilities.......... 2,533,266 2,163,026 2,556,225 2,200,513 2,228,059 2,240,562 2,313,628 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Partners Capital (Deficit).......... (1,266,633) (989,402) (997,128) (1,074,730) (1,066,103) (1,136,127) (1,137,462) ========== ========== ========== ========== ========== ========== ==========
LANDMARK ASSOCIATES, LTD. --------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, --------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS Rental Revenue............................. 282,279 324,467 611,308 623,834 633,965 623,840 608,803 Other Income............................... 32,495 49,878 92,870 111,097 74,884 24,426 18,760 --------- --------- --------- --------- --------- --------- --------- Total Revenue..................... 314,774 374,345 704,178 734,931 708,849 648,266 627,563 --------- --------- --------- --------- --------- --------- --------- Operating Expenses......................... 141,101 142,210 324,653 347,015 338,974 303,674 281,912 General & Administrative................... 13,404 18,153 28,080 27,925 40,473 36,068 53,825 Depreciation............................... 27,601 27,601 55,201 55,018 50,386 48,317 46,643 Interest Expense........................... 91,007 89,904 188,029 192,115 184,269 139,010 144,231 Property Taxes............................. 11,166 11,148 21,659 21,492 24,723 29,782 33,471 --------- --------- --------- --------- --------- --------- --------- Total Expenses.................... 284,279 289,016 617,622 643,565 638,825 556,851 560,082 --------- --------- --------- --------- --------- --------- --------- Net Income before Extraordinary Item....... 30,495 85,329 86,556 91,366 70,024 91,415 67,481 ========= ========= ========= ========= ========= ========= ========= Extraordinary loss......................... (8,954) --------- --------- --------- --------- --------- --------- --------- Net Income after Extraordinary Loss........ 30,495 85,329 77,602 91,366 70,024 91,415 67,481 ========= ========= ========= ========= ========= ========= =========
S-74 2202 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $30,495 for the six months ended June 30, 1998, compared to $85,329 for the six months ended June 30, 1997. The decrease in net income of $54,834, or 64.26% was primarily the result of a decrease in rental revenue. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $314,774 for the six months ended June 30, 1998, compared to $374,345 for the six months ended June 30, 1997, a decrease of $59,571, or 15.91%. This was primarily a result of an increase in vacancy and concession losses in 1998. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $141,101 for the six months ended June 30, 1998, compared to $142,210 for the six months ended June 30, 1997, a decrease of $1,109 or 0.78%. Management expenses totaled $16,115 for the six months ended June 30, 1998, compared to $18,387 for the six months ended June 30, 1997, a decrease of $2,272, or 12.36%. The decrease resulted from a decrease in rental revenues for 1998, as management fees are calculated based on a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $13,404 for the six months ended June 30, 1998 compared to $18,153 for the six months ended June 30, 1997, a decrease of $4,749 or 26.16%. The decrease is primarily due to decreased computer maintenance and supplies. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $91,007 for the six months ended June 30, 1998, compared to $89,904 for the six months ended June 30, 1997, an increase of $1,103, or 1.23%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $77,602 for the year ended December 31, 1997, compared to $91,366 for the year ended December 31, 1996. The decrease in net income of $13,764, or 15.06% was primarily the result of a decrease in rental revenue. These factors are discussed in more detail in the following paragraphs. S-75 2203 Revenues Rental and other property revenues from the partnership's property totaled $704,178 for the year ended December 31, 1997, compared to $734,931 for the year ended December 31, 1996, a decrease of $30,753, or 4.18%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $324,653 for the year ended December 31, 1997, compared to $347,015 for the year ended December 31, 1996, a decrease of $22,362 or 6.44%. This decrease was primarily due to a reduction in major landscaping. Management expenses totaled $35,112 for the year ended December 31, 1997, compared to $35,967 for the year ended December 31, 1996, a decrease of $855, or 2.38%. General and Administrative Expenses General and administrative expenses totaled $28,080 for the year ended December 31, 1997 compared to $27,925 for the year ended December 31, 1996, an increase of $155 or .56%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $188,029 for the year ended December 31, 1997, compared to $192,115 for the year ended December 31, 1996, a decrease of $4,086, or 2.13%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $91,366 for the year ended December 31, 1996, compared to $70,024 for the year ended December 31, 1995. The increase in net income of $21,342, or 30.48% was primarily the result of an increase in rental revenue. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $734,931 for the year ended December 31, 1996, compared to $708,849 for the year ended December 31, 1995, an increase of $26,082, or 3.68%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $347,015 for the year ended December 31, 1996, compared to $338,974 for the year ended December 31, 1995, an increase of $8,041 or 2.37%. Management expenses totaled $35,967 for the year ended December 31, 1996, compared to $34,897 for the year ended December 31, 1995, an increase of $1,070, or 3.07%. General and Administrative Expenses General and administrative expenses totaled $27,925 for the year ended December 31, 1996 compared to $40,473 for the year ended December 31, 1995, a decrease of $12,548 or 31.00%. The decrease is primarily due to a reduction in general partner reimbursements and professional fees. S-76 2204 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $192,115 for the year ended December 31, 1996, compared to $184,269 for the year ended December 31, 1995, an increase of $7,846, or 4.26%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $179,926 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 partners of your partnership are not liable to your partnership or any limited partner for any acts performed by any of them or any failure to act in the absence of gross negligence or willful malfeasance. 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 owned by AIMCO. See "Conflicts of Interest." Your partnership's agreement of limited partnership does not provide for the indemnification of the general partners or their affiliates for any acts or omissions performed by them on behalf of your partnership. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 78.00 1995........................................................ 0.00 1996........................................................ 87.45 1997........................................................ 0.00 1998 (through June 30)...................................... 246.13
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale S-77 2205 transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner).
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0 0 1995......................... 0 0 0 1996......................... 0 0 0 1997......................... 0 0 0 1998 (through June 30)....... 0 0 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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........................................................ 18,388 1995........................................................ 25,337 1996........................................................ 21,026 1997........................................................ 21,565 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... 34,897 1996........................................... 35,967 1997........................................... 35,112 1998 (through June 30)......................... 16,115
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 2206 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Landmark Associates, Ltd. at December 31, 1997, 1996, and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-79 2207 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-3 Condensed Statement of Cash flow............................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-10 Notes to the Financial Statements........................... F-11 Independent Auditors' Report................................ F-15 Balance Sheets as of December 31, 1996 and 1995............. F-16 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-17 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-18 Notes to the Financial Statements........................... F-19
F-1 2208 LANDMARK ASSOCIATES, LIMITED CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30 ,1998 ASSETS Cash and cash equivalents................................... $ 179,926 Receivables and Deposits.................................... 116,627 Restricted Escrows.......................................... 109,495 Other Assets................................................ 79,326 Investment Property: Land...................................................... 148,692 Building and related personal property.................... 2,747,587 ------------ 2,896,279 Less: Accumulated depreciation............................ (2,115,020) 781,259 ------------ ----------- Total Assets...................................... $ 1,266,633 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ -- Other Accrued Liabilities................................... 22,752 Property taxes payable...................................... 11,166 Tenant security deposits.................................... 11,075 Notes Payable............................................... 2,488,273 Partners' Capital........................................... (1,266,633) ----------- Total Liabilities and Partners' Capital........... $ 1,266,633 ===========
F-2 2209 LANDMARK ASSOCIATES, LIMITED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $282,279 $324,467 Other Income.............................................. 32,495 49,878 (Gain) Loss on Disposition of Property.................... -- -- Casualty Gain/Loss........................................ -- -- -------- -------- Total Revenues.................................... 314,774 374,345 Expenses: Operating Expenses........................................ 141,101 142,210 General and Administrative Expenses....................... 13,404 18,153 Depreciation Expense...................................... 27,601 27,601 Interest Expense.......................................... 91,007 89,904 Property Tax Expense...................................... 11,166 11,148 -------- -------- Total Expenses.................................... 284,279 289,016 -------- -------- Net Income........................................ $ 30,495 $ 85,329 ======== ========
F-3 2210 LANDMARK ASSOCIATES, LIMITED CONDENSED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ----------- --------- Cash flows from operating activities: Net income................................................ $ 77,602 $ 91,366 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 55,201 55,018 Amortization of loan costs and deferred charges........ 9,900 10,807 Extraordinary loss on early extinguishment of debt..... 8,954 -- Change in accounts: Receivables and deposits............................. (666) (46,173) Other assets......................................... (2,830) (1,020) Accounts payable..................................... 3,765 (10,052) Tenant security deposit liabilities.................. (2,891) 3,800 Other liabilities.................................... (20,292) 11,612 ----------- --------- Net cash provided by operating activities......... 128,743 115,358 ----------- --------- Cash flows from investing activities: Property improvements and replacements.................... (28,410) (46,343) Deposits to restricted escrow............................. (100,000) -- ----------- --------- Net cash used in investing activities............. (128,410) (46,343) ----------- --------- Cash flows from financing activities: Proceeds from mortgage note payable....................... 2,500,000 -- Payment of loan costs..................................... (71,389) -- Payment on mortgage note payable.......................... (32,421) (32,906) Payoff of debt............................................ (2,092,449) -- Distributions to partners................................. -- (99,993) ----------- --------- Net cash provided by (used in) financing activities...................................... 303,741 (132,899) ----------- --------- Net increase (decrease) in cash............................. 304,074 (63,884) Cash and cash equivalents at beginning of year.............. 200,292 264,176 ----------- --------- Cash and cash equivalents at end of year.................... $ 504,366 $ 200,292 =========== ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 178,116 $ 179,166 =========== =========
See Accompanying Notes to Financial Statements F-4 2211 LANDMARK ASSOCIATES, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Landmark Associates, Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 2212 LANDMARK ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 2213 INDEPENDENT AUDITORS' REPORT General Partners Landmark Associates, Limited: We have audited the accompanying balance sheets of Landmark Associates, Limited as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Landmark Associates, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP March 5, 1998 F-7 2214 LANDMARK ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 504,366 $ 200,292 Receivables and deposits.................................... 102,714 102,048 Restricted escrow (Note B).................................. 100,000 -- Other assets................................................ 75,329 19,964 Investment properties (Note C): Land...................................................... 145,000 145,000 Buildings and related personal property................... 2,719,107 2,690,697 ----------- ----------- 2,864,107 2,835,697 Less accumulated depreciation............................. (2,087,419) (2,032,218) ----------- ----------- 776,688 803,479 ----------- ----------- $ 1,559,097 $ 1,125,783 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 12,455 $ 8,690 Tenant security deposit liabilities....................... 15,475 18,366 Other liabilities......................................... 28,295 48,587 Mortgage note payable (Note C)............................ 2,500,000 2,124,870 Partners' deficit........................................... (997,128) (1,074,730) ----------- ----------- $ 1,559,097 $ 1,125,783 =========== ===========
See Accompanying Notes to Financial Statements F-8 2215 LANDMARK ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 611,308 $ 623,834 Other income.............................................. 92,870 111,097 ----------- ----------- Total revenues......................................... 704,178 734,931 ----------- ----------- Expenses: Operating (Note D)........................................ 324,653 347,015 General and administrative (Note D)....................... 28,080 27,925 Depreciation.............................................. 55,201 55,018 Interest.................................................. 188,029 192,115 Property taxes............................................ 21,659 21,492 ----------- ----------- Total expenses......................................... 617,622 643,565 ----------- ----------- Net income before extraordinary loss........................ 86,556 91,366 Extraordinary loss on early extinguishment of debt.......... (8,954) -- ----------- ----------- Net income............................................. 77,602 91,366 Distributions to partners................................... -- (99,993) Partners' deficit at beginning of year...................... (1,074,730) (1,066,103) ----------- ----------- Partners' deficit at end of year............................ $ (997,128) $(1,074,730) =========== ===========
See Accompanying Notes to Financial Statements F-9 2216 LANDMARK ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ----------- --------- Cash flows from operating activities: Net income................................................ $ 77,602 $ 91,366 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 55,201 55,018 Amortization of loan costs and deferred charges........ 9,900 10,807 Extraordinary loss on early extinguishment of debt..... 8,954 -- Change in accounts: Receivables and deposits............................. (666) (46,173) Other assets......................................... (2,830) (1,020) Accounts payable..................................... 3,765 (10,052) Tenant security deposit liabilities.................. (2,891) 3,800 Other liabilities.................................... (20,292) 11,612 ----------- --------- Net cash provided by operating activities......... 128,743 115,358 ----------- --------- Cash flows from investing activities: Property improvements and replacements.................... (28,410) (46,343) Deposits to restricted escrow............................. (100,000) -- ----------- --------- Net cash used in investing activities............. (128,410) (46,343) ----------- --------- Cash flows from financing activities: Proceeds from mortgage note payable....................... 2,500,000 -- Payment of loan costs..................................... (71,389) -- Payment on mortgage note payable.......................... (32,421) (32,906) Payoff of debt............................................ (2,092,449) -- Distributions to partners................................. -- (99,993) ----------- --------- Net cash provided by (used in) financing activities...................................... 303,741 (132,899) ----------- --------- Net increase (decrease) in cash............................. 304,074 (63,884) Cash and cash equivalents at beginning of year.............. 200,292 264,176 ----------- --------- Cash and cash equivalents at end of year.................... $ 504,366 $ 200,292 =========== ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 178,116 $ 179,166 =========== =========
See Accompanying Notes to Financial Statements F-10 2217 LANDMARK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Landmark Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated July 30, 1982. The Partnership owns and operates a 104 unit apartment complex, Landmark Woods Apartments, in Florence, South Carolina. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $71,389 and $18,855, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-11 2218 LANDMARK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are to be used for certain repair work...................................................... $100,000 $ -- ======== ========
NOTE C -- MORTGAGE NOTE PAYABLE In November 1997, the Partnership refinanced its first mortgage note with an outstanding balance of $2,104,201. The new mortgage note in the amount of $2,500,000 is payable in monthly installments of $17,122, at 7.29% with the remaining balance due December 2004; collateralized by land and buildings. A loss on refinancing of $8,954 was realized 1997, as a result of the write-off of unamortized loan costs associated with the original note. Loan costs of $71,389 related to the refinanced note were capitalized. Between the date of November 1, 2000 and June 1, 2004, upon giving 30 days prior written notice, the principal balance may be prepaid in whole but not in part by paying a prepayment premium in an amount equal to the greater of (1) 1% of the principal amount being prepaid or (2) the present value of a series of payments each equal to the payment differential (the interest rate (7.29%) less the reinvestment yield (the lesser of the yield on the U.S. Treasury issue with a maturity date closest to the maturity date or the yield on the U.S. Treasury issue with a term equal to the remaining average life of the debt with each yield being based on the bid price for such issue as published in the Wall Street Journal on the date that is 14 days prior to the prepayment date divided by 12 and multiplied by the principal sum outstanding on the prepayment date)) and payable on each monthly payment date over the remaining original term of this note and the maturity date discounted at the reinvestment yield for the number of months remaining from the prepayment date to each such monthly payment date and the maturity date. Scheduled principal payments of the mortgage note during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 24,009 1999..................................................... 25,819 2000..................................................... 27,765 2001..................................................... 29,859 2002..................................................... 32,109 Thereafter............................................... 2,360,439 ---------- $2,500,000 ==========
F-12 2219 LANDMARK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- ------- ------- Management fee........................................... $35,112 $35,967 Partnership administration fee........................... $ 6,884 $ 7,193 Reimbursement for services of affiliates................. $14,006 $13,833 Construction oversight costs............................. $ 675 $ --
F-13 2220 LANDMARK ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 2221 INDEPENDENT AUDITORS' REPORT General Partners Landmark Associates, Limited: We have audited the accompanying balance sheets of Landmark Associates, Limited as of December 31, 1996 and 1995, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Landmark Associates, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP March 5, 1997 F-15 2222 LANDMARK ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 200,292 $ 264,176 Restricted -- tenant security deposits.................... 17,978 13,978 Accounts receivable......................................... 2,270 1,793 Escrow for taxes and insurance.............................. 81,800 40,104 Other assets................................................ 19,964 29,751 Investment properties (Note B): Land...................................................... 145,000 145,000 Buildings and related personal property................... 2,690,697 2,644,354 ----------- ----------- 2,835,697 2,789,354 Less accumulated depreciation............................. (2,032,218) (1,977,200) ----------- ----------- 803,479 812,154 ----------- ----------- $ 1,125,783 $ 1,161,956 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 8,690 $ 18,742 Tenant security deposits.................................. 18,366 14,566 Other liabilities......................................... 48,587 36,975 Mortgage note payable (Note B)............................ 2,124,870 2,157,776 Partners' deficit........................................... (1,074,730) (1,066,103) ----------- ----------- $ 1,125,783 $ 1,161,956 =========== ===========
See Accompanying Notes to Financial Statements F-16 2223 LANDMARK ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 623,834 $ 633,965 Other income.............................................. 111,097 74,884 ----------- ----------- Total revenues......................................... 734,931 708,849 ----------- ----------- Expenses: Operating (Note C)........................................ 276,556 272,174 General and administrative (Note C)....................... 27,925 40,473 Maintenance............................................... 70,459 66,800 Depreciation.............................................. 55,018 50,386 Interest.................................................. 192,115 184,269 Property taxes............................................ 21,492 24,723 ----------- ----------- Total expenses......................................... 643,565 638,825 ----------- ----------- Net income.................................................. 91,366 70,024 Distributions to partners................................... (99,993) -- Partners' deficit at beginning of year...................... (1,066,103) (1,136,127) ----------- ----------- Partners' deficit at end of year............................ $(1,074,730) $(1,066,103) =========== ===========
See Accompanying Notes to Financial Statements F-17 2224 LANDMARK ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 ---------- --------- Cash flows from operating activities Net income................................................ $ 91,366 $ 70,024 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 55,018 50,386 Amortization of loan costs and deferred charges........ 10,807 10,808 Change in accounts: Restricted cash...................................... (4,000) 507 Accounts receivable.................................. (477) (1,566) Escrow for taxes and insurance....................... (41,696) (40,004) Other assets......................................... (1,020) -- Accounts payable..................................... (10,052) 11,162 Tenant security deposit liabilities.................. 3,800 (97) Other liabilities.................................... 11,612 8,498 --------- -------- Net cash provided by operating activities......... 115,358 109,718 --------- -------- Cash flows from investing activities: Property improvements and replacements.................... (46,343) (28,330) --------- -------- Net cash used in investing activities............. (46,343) (28,330) --------- -------- Cash flows from financing activities: Payments on mortgage note payable......................... (32,906) (32,066) Distributions to partners................................. (99,993) -- --------- -------- Net cash used in financing activities............. (132,899) (32,066) --------- -------- Net increase (decrease) in cash............................. (63,884) 49,322 Cash and cash equivalents at beginning of year.............. 264,176 214,854 --------- -------- Cash and cash equivalents, at end of year................... $ 200,292 $264,176 ========= ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 179,166 $171,192 ========= ========
See Accompanying Notes to Financial Statements F-18 2225 LANDMARK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Landmark Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated July 30, 1982. The Partnership owns and operates a 104 unit apartment complex, Landmark Woods Apartments, in Florence, South Carolina. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1996 and 1995 include deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. F-19 2226 LANDMARK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- MORTGAGE NOTE PAYABLE The mortgage note payable consists of a first mortgage note, due in October 1998, payable in varying monthly installments based on the interest rate; the current monthly payment is $17,958. The interest rate is adjusted every six months based on the average six month Treasury bill rate for the six months preceding the adjustment date plus three percent; the rate was 8.57% at December 31, 1996. The rate cannot change more than 1% from the prior period and has a lifetime floor and ceiling of 3.125% and 13.125%, respectively. The note is collateralized by the land and buildings and may be prepaid at any time without a prepayment penalty. Scheduled principal payments of the mortgage note during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 35,918 1998..................................................... 2,088,952 ---------- $2,124,870 ==========
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- ------- ------- Management fee........................................... $35,967 $34,897 Partnership administration fee........................... $ 7,193 $ 6,979 Reimbursement for services of affiliates................. $13,833 $19,358
F-20 2227 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 2228 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 2229 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 September , 1998 A-3 2230 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF MINNEAPOLIS ASSOCIATES II 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 2231 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-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 Minneapolis Associates II 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-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-36 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-41 Fees and Expenses............................ S-42 Accounting Treatment......................... S-42
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-43 General...................................... S-43 Ranking...................................... S-43 Distributions................................ S-43 Allocation................................... S-44 Liquidation Preference....................... S-44 Redemption................................... S-45 Voting Rights................................ S-45 Restrictions on Transfer..................... S-45 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-48 CERTAIN FEDERAL INCOME TAX MATTERS............. S-51 Tax Consequences of Exchanging Units Solely for OP Units............................... S-51 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-51 Tax Consequences of Exchanging Units Solely for Cash................................... S-52 Adjusted Tax Basis........................... S-52 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-53 Passive Activity Losses...................... S-53 Foreign Offerees............................. S-54 Certain Tax Consequences to Non-Tendering and Partially-Tendering Unitholders............ S-54 VALUATION OF UNITS............................. S-55 FAIRNESS OF THE OFFER.......................... S-56 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-56 Fairness to Unitholders who Tender their Units...................................... S-57 Fairness to Unitholders who do not Tender their Units................................ S-58 Comparison of Consideration to Alternative Consideration.............................. S-58 Allocation of Consideration.................. S-59 STANGER ANALYSIS............................... S-59 Experience of Stanger........................ S-60 Summary of Materials Considered.............. S-60 Summary of Reviews........................... S-61 Conclusions.................................. S-61 Assumptions, Limitations and Qualifications............................. S-61 Compensation and Material Relationships...... S-62 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-63 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-68 CONFLICTS OF INTEREST.......................... S-72 Conflicts of Interest with Respect to the Offer...................................... S-72 Conflicts of Interest that Currently Exist for Your Partnership....................... S-72 Competition Among Properties................. S-72 Features Discouraging Potential Takeovers.... S-72 Future Exchange Offers....................... S-72
i 2232
PAGE ---- YOUR PARTNERSHIP............................... S-73 General...................................... S-73 Your Partnership and its Property............ S-73 Property Management.......................... S-73 Investment Objectives and Policies; Sale or Financing of Investments................... S-73 Capital Replacement.......................... S-73 Borrowing Policies........................... S-74 Competition.................................. S-74 Legal Proceedings............................ S-74 Selected Financial Information............... S-75 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-76 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78
PAGE ---- Distributions and Transfers of Units......... S-78 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-79 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 2233 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 Minneapolis Associates II 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 the managing general partner of your partnership (the "general partnership") 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 2234 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 2235 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 $0 per unit 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). 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 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. 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 S-3 2236 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer 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. 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2237 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 100% of 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? 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: 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 S-5 2238 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 2239 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. 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. 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 5 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. 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 S-7 2240 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. 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. Although your partnership did not make any distributions in 1998, it might make distributions in the future. 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 Code. The particular tax consequences to you of the exchange 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 2241 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the 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 2242 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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 2243 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, 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 2244 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 2245 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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). Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 2246 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 2247 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 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 2248 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 2249 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 2250 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 aggregate capital contributions that can be made by limited partners which is not the case with the AIMCO Operating Partnership. 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fees in its capacity as general partner of your partnership but may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $155,150 in 1996, $160,843 in 1997 and $90,029 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. S-18 2251 YOUR PARTNERSHIP Your Partnership and its Property. Minneapolis Associates II Limited Partnership is a Massachusetts limited partnership which was formed on May 12, 1983 for the purpose of owning and operating, through a 45% interest in Burnsville Apartment Limited Partnership, a single apartment property located in Burnsville, Minnesota, known as "The Woods of Burnsville." In 1989, it completed a private placement of units. The Woods at Burnsville consists of 400 apartment units. Your partnership has no employees. Property Management. Since November 1997, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2033, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1997, your partnership had a first mortgage in the amount of $16,580,000, a second mortgage in the amount of $550,000, and a third mortgage in the amount of $750,000, all due August 1999, payable to Dreyfus. The first mortgage bears interest at 7.00%, and the second and third mortgages do not bear interest. Your partnership's agreement of limited partnership also allows your general partner to lend to your partnership. The property also secures $275,892 owed to the general partner due in August 1999. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2252 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, 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 2253
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 2254 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 the exchange offers.
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............................. (6,634) (20,663) -------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) -------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) -------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- -------- --------- Net income........................................ $ 10,579 $ (38,135) ======== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 2255
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 2256 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)................................. $ 10,579 $(38,135) 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....... 3,877 7,752 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........................ 60,297 104,471 Interest on convertible debentures................ (5,012) (10,003) Preferred unit distributions...................... (15,107) (30,214) -------- -------- Funds from operations............................. $121,674 $170,742 ======== ========
S-24 2257 SUMMARY FINANCIAL INFORMATION OF MINNEAPOLIS ASSOCIATES II LIMITED PARTNERSHIP The summary financial information of Minneapolis Associates II Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Minneapolis Associates II 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 of Your Partnership" included herein. See "Index to Financial Statements." MINNEAPOLIS ASSOCIATES II LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, --------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... $ 1,823,591 $ 0 $ 3,479,972 $ 3,201,929 $ 3,049,589 $ 3,159,809 $ 3,103,528 Net Income/(Loss)............ (19,440) 0 (205,363) (347,840) (279,767) (545,202) (657,806) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... $11,227,012 #VALUE! $11,420,449 $11,702,590 $12,065,709 $12,448,938 $12,924,205 Total Assets................. 12,759,668 0 13,108,944 13,328,997 13,582,960 13,925,231 14,458,033 Mortgage Notes Payable, including Accrued Interest................... 18,266,878 0 18,266,876 18,266,872 8,266,868 18,266,867 18,266,867 Partners' Capital/(Deficit).......... (6,539,080) 0 (6,216,145) (6,010,782) (5,662,942) (5,383,175) (4,837,973)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $0
S-25 2258 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. 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 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 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. S-26 2259 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 Code. 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 therefore 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 apartment property. In contrast, the AIMCO Operating Partnership is in the business of acquiring, S-27 2260 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25, and the 1998 distributions of $0 with respect to your units, 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 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 2261 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 prohibits any transfer of units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the offer. MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. S-29 2262 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 2263 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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 OP Units rank equal to six other outstanding classes of Partnership Preferred Units. Your Partnership has not paid any distributions on your units since the inception of your partnership. - 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. Your Partnership has not paid any distributions on your units since the inception of your partnership. - 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 2264 - 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 2265 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-33 2266 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 2267 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. 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. S-35 2268 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." 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. 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. S-36 2269 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, (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 9:00 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 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, Denver, Colorado time. S-37 2270 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-38 2271 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. 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 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 S-39 2272 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 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 S-40 2273 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-41 2274 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. 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. 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-42 2275 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-43 2276 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 payment. 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 OP Units and any such S-44 2277 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-45 2278 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-46 2279 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-47 2280 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-48 2281 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-49 2282 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-50 2283 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-51 2284 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-52 2285 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-53 2286 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 UNITHOLDERS 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 unitholders who do not tender all of their units (a "Remaining Unitholders") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Unitholder will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Unitholders in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Unitholder'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 Unitholders 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 Unitholders 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 unitholder 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 unitholders. In the case of a Remaining Unitholder 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 unitholder's taxable income for the year of Termination. S-54 2287 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-55 2288 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-56 2289 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 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, a third party expert, 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 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions of $2.25 with respect to the Common OP Units and the 1998 distributions of $ with respect to your units, distributions with respect to the Preferred OP Units and Common OP Units being offered are expected to be , immediately following the 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 S-57 2290 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................................ Not available Estimated Liquidation Proceeds............................ $
S-58 2291 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. 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-1 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-59 2292 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-60 2293 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 September 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 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 property was 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, S-61 2294 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-62 2295 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing The Woods of Burnsville. 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 2033. OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities The purpose of your partnership is to hold a The purpose of the AIMCO Operating Partnership is to partnership interest in Burnsville Apartments Limited conduct any business that may be lawfully conducted by Partnership, a Minnesota limited partnership and to a limited partnership organized pursuant to the maintain, operate, lease, sell, dispose of and Delaware Revised Uniform Limited Partnership Act (as otherwise deal with your partnership's property as a amended from time to time, or any successor to such general partner of Burnsville Apartments Limited statute) (the "Delaware Limited Partnership Act"), Partnership, in a manner consistent with your provided that such business is to be conducted in a partnership's property's status as multi-family housing manner that permits AIMCO to be qualified as a REIT, project. Subject to restrictions contained in your unless AIMCO ceases to qualify as a REIT. The AIMCO partnership's agreement of limited partnership, your Operating Partnership is authorized to perform any and partnership may perform all acts necessary 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-63 2296 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 to the limited partners of time to the limited partners and to other persons, and Minneapolis Associates Limited Partners, a Maryland to admit such other persons as additional limited partnership, who fulfill the requirements set forth in partners, on terms and conditions and for such capital your partnership's agreement of limited partnership. contributions as may be established by the general The capital contribution need not be equal for all partner in its sole discretion. The net capital limited partners and no action or consent is required contribution need not be equal for all OP Unitholders. in connection with the admission of any additional No action or consent by the OP Unitholders is required limited partners. in connection with the admission of any additional OP In addition, the general partner may in its sole Unitholder. See "Description of OP Units -- Management discretion make call for additional capital from the by the AIMCO GP" in the accompanying Prospectus. limited partners until the contributions for the Subject to Delaware law, any additional partnership limited partners equal the amount specified in your interests may be issued in one or more classes, or one partnership's agreement of limited partnership. Such or more series of any of such classes, with such contributions are voluntary. 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 enter into contracts funds or other assets to its subsidiaries or other of any kind with the general partner or its affiliates persons in which it has an equity investment, and such which are necessary to, in connection with or persons may borrow funds from the AIMCO Operating incidental to, the accomplishment of the purposes of Partnership, on terms and conditions established in the your partnership. Affiliates of the general partner sole and absolute discretion of the general partner. To will receive compensation for services as set forth in the extent consistent with the business purpose of the your partnership's agreement of limited partnership and AIMCO Operating Partnership and the permitted may receive compensation for other services it provides activities of the general partner, the AIMCO Operating as long as such fees are reasonable and competitive. Partnership may transfer assets to joint ventures, Your partnership may also borrow money from general limited liability companies, partnerships, partner at a rate of two percentage points over the corporations, business trusts or other business prime rate as in effect and as published in the Wall entities in which it is or thereby becomes a Street Journal from time to time, to the same extent participant upon such terms and subject to such and in the same manner as a loan made by a lender who conditions consistent with the AIMCO Operating Part- is not a partner. 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 indebtedness in furtherance restrictions on borrowings, and the general partner has of any or all of the purposes of your partnership, and full power and authority to borrow money on behalf of to secure any such debt by mortgage, pledge, or other the AIMCO Operating Partnership. The AIMCO Operating lien on any of the assets of your partnership. The Partnership has credit agreements that restrict, among general partner may also borrow money on the general other things, its ability to incur indebtedness. See credit of your partner for use in the partnership's "Risk Factors -- Risks of Significant Indebtedness" in business. the accompanying Prospectus.
S-64 2297 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 the limited partners to inspect the books and with a statement of the purpose of such demand and at records of your partnership at the principal office of such OP Unitholder's own expense, to obtain a current your partnership at any and all reasonable times during list of the name and last known business, residence or normal business hours. mailing address of the general partner and each other OP Unitholder.
Management Control The general partner of your partnership has the full, All management powers over the business and affairs of complete and exclusive authority, responsibility and the AIMCO Operating Partnership are vested in AIMCO-GP, discretion to manage, control and conduct your Inc., which is the general partner. No OP Unitholder partnership's business and your partnership's property, has any right to participate in or exercise control or on behalf of your partnership in its capacity as management power over the business and affairs of the general partner of Burnsville Apartments Limited AIMCO Operating Partnership. The OP Unitholders have Partnership. In extension and not in limitation of the the right to vote on certain matters described under rights and powers given by law and by your "Comparison of Ownership of Your Units and AIMCO OP partnership's agreement of limited partnership, the Units -- Voting Rights" below. The general partner may general partner has the right, power and authority to not be removed by the OP Unitholders with or without do any and all acts and things necessary, proper, cause. convenient or advisable to effectuate the purpose of your partnership and to conduct its business in In addition to the powers granted a general partner of accordance with your partnership's agreement of limited a limited partnership under applicable law or that are partnership. No limited partners have any authority or granted to the general partner under any other right to act for or bind your partnership or provision of the AIMCO Operating Partnership Agreement, participate in or have any control over your the general partner, subject to the other provisions of partnership's business, except as required by law. 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 loss suffered by your Partnership for losses sustained, liabilities incurred partnership which arises out of any action or inaction or benefits not derived as a result of errors in of the general partner or its affiliates if the general judgment or mistakes of fact or law of any act or partner or its affiliates, in good faith, determined omission if the general partner acted in good faith. that such course of conduct was in the best interests The AIMCO Operating Partnership Agreement provides for of your 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 or its affiliates. In addition, the of the AIMCO Operating Partnership), the general general partner and its affiliates are entitled to partner, any officer or director of general partner or indemnification by your partnership against any loss, the AIMCO Operating Partnership and such other persons judgments, liabilities, expenses and amounts paid in as the general partner may designate from and against settlement of any claims sustained by them in all losses, claims, damages, liabilities, joint or connection with your partnership, provided that the several, expenses (including legal fees), fines, same were not the result of negligence or misconduct on settlements and other amounts incurred in connection the part of the general partner or its affiliates. Any with any actions relating to the operations of the indemnity paid will be paid from, and only to the AIMCO Operating Partnership, as set forth in the AIMCO extent of, your partnership's assets and no partner Operating Partnership Agreement. The Delaware Limited will have any personal liability on account thereof. 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
S-65 2298 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Your partnership's agreement of limited partnership Except in limited circumstances, the general partner does not provide for the removal of the general partner has exclusive management power over the business and of your partnership. A general partner may withdraw affairs of the AIMCO Operating Partnership. The general voluntarily from your partnership with the consent of partner may not be removed as general partner of the the limited partners owning a majority of the AIMCO Operating Partnership by the OP Unitholders with outstanding units or may transfer its interest without or without cause. Under the AIMCO Operating Partnership the consent of the limited partners if the transferee Agreement, the general partner may, in its sole is an affiliate of the general partner. The general discretion, prevent a transferee of an OP Unit from partner and the holders of a majority of the units must becoming a substituted limited partner pursuant to the consent to the admission of a successor or additional AIMCO Operating Partnership Agreement. The general general partner. A limited partner may not transfer his partner may exercise this right of approval to deter, interests without the consent of the general partner delay or hamper attempts by persons to acquire a which may be withheld at the sole discretion of the controlling interest in the AIMCO Operating Partner- 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 limited partnership may With the exception of certain circumstances set forth be amended by the general partner to comply with any in the AIMCO Operating Partnership Agreement, whereby applicable laws. Amendments which increase the the general partner may, without the consent of the OP liability of any partner may not be made without the Unitholders, amend the AIMCO Operating Partnership consent of such partner. No amendment may be made which Agreement, amendments to the AIMCO Operating reduces the allocations and distributions to the Partnership Agreement require the consent of the limited partner without the approval of a majority in holders of a majority of the outstanding Common OP interest of limited partners other than any limited Units, excluding AIMCO and certain other limited partners whose allocations or distributions would be exclusions (a "Majority in Interest"). Amendments to increased as a result of such amendment. Other the AIMCO Operating Partnership Agreement may be amendments must be approved by the limited partners proposed by the general partner or by holders of a owning more than 50% of the units and the general Majority in Interest. Following such proposal, the partner. general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fees in its capacity as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to compensation for additional services nership is responsible for all expenses incurred rendered. 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-66 2299 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, limited partners are not liable for any negligence, no OP Unitholder has personal liability for debts, liabilities, contract 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 contributions 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 has been fully paid, no ment in the AIMCO Operating Partnership. However, the limited partner will be required to make any further limitations on the liability of limited partners for capital contributions or lend any funds to your the obligations of a limited partnership have not been 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, the general partner must take all steps partnership agreement, Delaware law generally requires necessary on a reasonable, best efforts basis to a general partner of a Delaware limited partnership to conduct the business of your partnership and your adhere to fiduciary duty standards under which it owes partnership's property to maximize the financial its limited partners the highest duties of good faith, condition of your partnership in the circumstances. The fairness and loyalty and which generally prohibit such general partner is required to devote only such of its general partner from taking any action or engaging in time and attention to the affairs of your partnership any transaction as to which it has a conflict of as it determines, in its discretion, is necessary for interest. The AIMCO Operating Partnership Agreement conduct of your partnership's business in the expressly authorizes the general partner to enter into, circumstances and to fulfill the purposes of your on behalf of the AIMCO Operating Partnership, a right partnership. The general partner and its affiliates of first opportunity arrangement and other conflict may, in their discretion, develop, own, buy, sell, avoidance agreements with various affiliates of the finance, refinance, construct or manage any apartment AIMCO Operating Partnership and the general partner, on project or other business opportunity of any kind or such terms as the general partner, in its sole and nature, whether or not it is within the vicinity of absolute discretion, believes are advisable. The AIMCO your partnership's property and whether or not such Operating Partnership Agreement expressly limits the other apartment complex is in competition with your liability of the general partner by providing that the partnership's property. Any opportunity of the general general partner, and its officers and directors will partner in respect of any other apartment project or not be liable or accountable in damages to the AIMCO business opportunity of any kind or nature is personal Operating Partnership, the limited partners or to the general partner and does not need to be offered assignees for errors in judgment or mistakes of fact or to your partnership or any other partner. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-67 2300 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 consent of the limited partners Operating Partnership Agreement, have voting rights only with owning a majority of the the holders of the Preferred OP respect to certain limited matters outstanding units is necessary to Units will have the same voting such as certain amendments and cause the termination of your rights as holders of the Common OP termination of the AIMCO Operating partnership; to allow the general Units. See "Description of OP Partnership Agreement and certain partner to become personally liable Units" in the accompanying transactions such as the or allow your partnership to become Prospectus. So long as any institution of bankruptcy personally liable on, or to guaran- Preferred OP Units are outstand- proceedings, an assignment for the tee the Refinancing Documents (as ing, in addition to any other vote benefit of creditors and certain defined in your partnership's or consent of partners required by transfers by the general partner of agreement of limited partnership); law or by the AIMCO Operating its interest in the AIMCO Operating to sell, assign, trans- Partnership Agree- Part-
S-68 2301 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS fer, encumber or otherwise dispose ment, the affirmative vote or nership or the admission of a of all or any portion of your consent of holders of at least 50% successor general partner. partnership's general partner of the outstanding Preferred OP interest in Burnsville Apartments Units will be necessary for Under the AIMCO Operating Partner- Limited Partnership or the effecting any amendment of any of ship Agreement, the general partner partnership's property other than the provisions of the Partnership has the power to effect the as contemplated in the Refinancing Unit Designation of the Preferred acquisition, sale, transfer, Documents; to amend your OP Units that materially and exchange or other disposition of partnership's agreement of limited adversely affects the rights or any assets of the AIMCO Operating partnership in any manner which preferences of the holders of the Partnership (including, but not would alter the substance of your Preferred OP Units. The creation or limited to, the exercise or grant agreement, except in limited issuance of any class or series of of any conversion, option, circumstances and to approve the partnership units, including, privilege or subscription right or withdrawal of a general partner. without limitation, any partner- any other right available in For purposes of obtaining such ship units that may have rights connection with any assets at any consent, a written request will be senior or superior to the Preferred time held by the AIMCO Operating made by the general partner to the OP Units, shall not be deemed to Partnership) or the merger, limited partners and unless written materially adversely affect the consolidation, reorganization or notice objecting thereto is given rights or preferences of the other combination of the AIMCO by a limited partner within thirty holders of Preferred OP Units. With Operating Partnership with or into days, the consent of such limited respect to the exercise of the another entity, all without the partner will be assumed to be above described voting rights, each consent of the OP Unitholders. given. Preferred OP Units shall have one A general partner may cause the (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the your partnership dissolution of the AIMCO Operating by retiring. Your partnership may Partnership by an "event of be continued by the remaining withdrawal," as defined in the general partner if, in its sole Delaware Limited Partnership Act discretion, it elects to do so. If (including, without limitation, there is no general partner to bankruptcy), unless, within 90 days continue your partnership, the after the withdrawal, holders of a limited partners, within ninety "majority in interest," as defined days of the retirement, may elect in the Delaware Limited Partnership to continue your partnership by Act, agree in writing, in their electing a substitute general sole and absolute discretion, to partner by a vote of the holders of continue the business of the AIMCO a majority of the outstanding Operating Partnership and to the units. 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 Flow are made $ per Preferred OP Unit; tribute quarterly all, or such within 90 days after the close of provided, however, that at any time portion as the general partner may each fiscal year. The distributions and from time to time on or after in its sole and absolute discretion payable to the partners are not the fifth anniversary of the issue determine, of Available Cash (as fixed in amount and depend upon the date of the Preferred OP Units, the defined in the AIMCO Operating operating results and net sales or AIMCO Operating Partnership may Partnership Agreement) generated by refinancing proceeds available from adjust the annual distribution rate the AIMCO Operating Partnership the disposition of your on the Preferred OP Units to the during such quarter to the general partnership's assets. Your lower of (i) % plus the annual partner, the special limited partnership has not made interest rate then applicable to partner and the holders of Common distributions in the past and is U.S. Treasury notes with a maturity OP Units on the record date not projected to make distributions of five years, and (ii) the annual established by the general partner in 1998. 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-69 2302 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 other than a Preferred OP Units and the OP Units. The AIMCO Operating Part- minor, except in limited Preferred OP Units are not listed nership Agreement restricts the circumstances, or to an incompe- on any securities exchange. The transferability of the OP Units. tent and such person will be Preferred OP Units are subject to Until the expiration of one year substituted as a limited partner by restrictions on transfer as set from the date on which an OP such person if: (1) the assignee forth in the AIMCO Operating Unitholder acquired OP Units, agrees to be bound by the Partnership Agreement. subject to certain exceptions, such provisions 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) the approval of the general Partnership Agreement, until the any transferee without the consent partner which may be withheld in expiration of one year from the of the general partner, which the sole and absolute discretion of date on which a holder of Preferred consent may be withheld in its sole the general partner has been OP Units acquired Preferred OP and absolute discretion. After the granted and (3) the assignor and Units, subject to certain expiration of one year, such OP assignee have complied with such exceptions, such holder of Unitholder has the right to other conditions as set forth in Preferred OP Units may not transfer transfer all or any portion of its your partnership's agreement of all or any portion of its Pre- OP Units to any person, subject to limited partnership. ferred OP Units to any transferee the satisfaction of certain There are no redemption rights without the consent of the general conditions specified in the AIMCO associated with your units. 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
S-70 2303 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-71 2304 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fees in its capacity as general partner of your partnership but may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $155,150 in 1996, $160,843 in 1997 and $90,029 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's 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'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 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-72 2305 YOUR PARTNERSHIP GENERAL Minneapolis Associates II Limited Partnership is a Massachusetts limited partnership which owns a 45% interest in Burnsville Apartment Limited Partnership. Insignia acquired your partnership in November 1997. AIMCO acquired Insignia in October, 1998. There are currently a total of 35 limited partners of your partnership and a total of 79 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 12, 1983 for the purpose of owning and operating, through Burnsville Apartment Limited Partnership, a single apartment property located in Burnsville, Minnesota, known as "The Woods of Burnsville." Your partnership's property consists of 400 apartment units. The total rentable square footage of your partnership's property is 359,861 square feet. The average annual rent per apartment unit is approximately $8,049. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1997, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $155,150, $160,843 and $90,029, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2033 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement S-73 2306 of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1997, your partnership had a first mortgage in the amount of $16,580,000, a second mortgage in the amount of $550,000, and a third mortgage in the amount of $750,000, all due August 1999, payable to Dreyfus. The first mortgage bears interest at 7.00%, and the second and third mortgages do not bear interest. Your partnership's agreement of limited partnership also allows your general partner to lend to your partnership. The property also secures $275,892 owed to the general partner due in August 1999. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. S-74 2307 SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. Below is selected financial information for Minneapolis Associates II Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
MINNEAPOLIS ASSOCIATES II LIMITED PARTNERSHIP ---------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------ ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ---------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents...... $ 70,022 Not $ 186,739 $ 143,331 $ 208,313 $ 244,836 $ 293,376 Land & Building................ 19,824,182 Available 19,714,125 19,389,278 19,167,207 18,972,952 18,811,013 Accumulated Depreciation....... (8,597,170) (8,293,676) (7,686,688) (7,101,498) (6,524,014) (5,886,808) Other Assets................... 1,462,634 0 1,501,756 1,483,076 1,308,938 1,231,457 1,240,452 ----------- ---------- ----------- ----------- ----------- ----------- ----------- Total Assets.......... $12,759,668 $ 0 $13,108,944 $13,328,997 $13,582,960 $13,925,231 $14,458,033 =========== ========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest.... 18,266,878 18,266,876 18,266,872 18,266,868 18,266,867 18,266,867 Other Liabilities.............. 728,178 1,058,213 1,072,907 979,034 1,041,539 1,029,139 ----------- ---------- ----------- ----------- ----------- ----------- ----------- Total Liabilities..... $18,995,056 $ 0 $19,325,089 $19,339,779 $19,245,902 $19,308,406 $19,296,006 ----------- ---------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)..... $(6,539,080) $ 0 $(6,216,145) $(6,010,782) $(5,662,942) $(5,383,175) $(4,837,973) =========== ========== =========== =========== =========== =========== ===========
MINNEAPOLIS ASSOCIATES II LIMITED PARTNERSHIP --------------------------------------------------------------------------------------- FOR THE SIX MONTHS FOR THE YEARS ENDED ENDED JUNE 30, DECEMBER 31, ---------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- --------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS Rental Revenue........................ $1,701,022 $ $3,238,820 $2,976,393 $2,837,199 $2,981,522 $2,926,845 Other Income.......................... 122,569 241,152 225,536 212,390 178,287 176,683 ---------- --------- ---------- ---------- ---------- ---------- ---------- Total Revenue................ $1,823,591 $ 0 $3,479,972 $3,201,929 $3,049,589 $3,159,809 $3,103,528 ---------- --------- ---------- ---------- ---------- ---------- ---------- Operating Expenses.................... 585,258 1,159,557 1,199,723 1,010,145 1,331,471 1,291,561 General & Administrative.............. 108,987 224,406 85,300 103,575 86,512 107,880 Depreciation.......................... 303,494 606,988 585,190 577,484 637,206 666,591 Interest Expense...................... 607,100 1,160,604 1,160,600 1,160,600 1,160,600 1,170,302 Property Taxes........................ 238,192 533,780 518,956 477,552 489,222 525,000 ---------- --------- ---------- ---------- ---------- ---------- ---------- Total Expenses............... $1,843,031 $ 0 $3,685,335 $3,549,769 $3,329,356 $3,705,011 $3,761,334 ---------- --------- ---------- ---------- ---------- ---------- ---------- Net Income............................ $ (19,440) $ 0 $ (205,363) $ (347,840) $ (279,767) $ (545,202) $ (657,806) ========== ========= ========== ========== ========== ========== ==========
S-75 2308 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Due to this partnership being a recent acquisition, very little discussion is available for variances. Results of Operations Six Months Ended June 30, 1998 Due to this partnership being a recent acquisition, no data is available for the six months ended June 30, 1997. Net Income Your Partnership recognized a net loss of $19,440 for the six months ended June 30, 1998. Revenues Rental and other property revenues from the partnership's property totaled $1,823,591 for the six months ended June 30, 1998. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $585,258 for the six months ended June 30, 1998. Management expenses totaled $90,029 for the six months ended June 30, 1998. General and Administrative Expenses General and administrative expenses totaled $108,987 for the six months ended June 30, 1998. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $607,100 for the six months ended June 30, 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss $205,363 for the year ended December 31, 1997, compared to a net loss of $347,840 for the year ended December 31, 1996. The increase of $142,477, was primarily the result of an increase in rental revenues offset by an increase in administrative expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $3,479,972 for the year ended December 31, 1997, compared to $3,201,929 for the year ended December 31, 1996, an increase of $278,043, or 8.68%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,159,557 for the year ended December 31, 1997, compared to $1,199,723 for the year ended December 31, S-76 2309 1996, a decrease of $40,166 or 3.35%. Management expenses totaled $160,843 for the year ended December 31, 1997, compared to $155,150 for the year ended December 31, 1996, an increase of $5,693, or 3.67%. General and Administrative Expenses General and administrative expenses totaled $224,406 for the year ended December 31, 1997 compared to $85,300 for the year ended December 31, 1996, an increase of $139,106 or 163.08%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,160,604 for the year ended December 31, 1997, compared to $1,160,600 for the year ended December 31, 1996, an increase of $4. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $347,840 for the year ended December 31, 1996, compared to a net loss of $279,767 for the year ended December 31, 1995. The decrease in net income of $68,073, or 24.33% was primarily the result of an increase operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $3,201,929 for the year ended December 31, 1996, compared to $3,049,589 for the year ended December 31, 1995, an increase of $152,340, or 5.00%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,199,723 for the year ended December 31, 1996, compared to $1,010,145 for the year ended December 31, 1995, an increase of $189,578 or 18.77%. Management expenses totaled $155,150 for the year ended December 31, 1996, compared to $148,243 for the year ended December 31, 1995, an increase of $6,907, or 4.66%. General and Administrative Expenses General and administrative expenses totaled $85,300 for the year ended December 31, 1996 compared to $103,575 for the year ended December 31, 1995, a decrease of $18,275 or 17.64%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,160,600 for the year ended December 31, 1996, compared to $1,160,600 for the year ended December 31, 1995. Liquidity and Capital Resources As of June 30, 1998, your partnership had $70,022 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-77 2310 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 loss suffered by your partnership which arises out of any action or inaction of the general partner or its affiliates if the general partner or its affiliates, 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 on the part of the general partner or its affiliates. The general partner of your partnership is owned by AIMCO. See "Conflicts of Interest". The general partner and its affiliates are entitled to indemnification by your partnership against any loss, judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by them in connection with your partnership, provided that the same were not the result of negligence or misconduct on the part of the general partner or its affiliates. Any indemnity paid will be paid from, and only to the extent of, your partnership's assets and no partner will have any personal liability on account thereof. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership will not incur the cost of the portion of any insurance which insures any party against any liabilities as to which such party is prohibited from being indemnified under your partnership's agreement of limited partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions Your partnership has made no distributions in the past five years. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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-78 2311 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership has not received any compensation from your partnership. An affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $148,243 1996........................................... 155,150 1997........................................... 160,843 1998 (through June 30)......................... 90,029
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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Burnsville Apartments Limited Partnership at December 31, 1997, 1996 and 1995, and for each of the three years in the period ended December 31, 1997, appearing in this Prospectus Supplement have been audited by Reznick Fedder & Silverman, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-79 2312 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statement of Operations for the six months ended June 30, 1998 (unaudited)................................. F-3 Condensed Statement of Cash Flows for the six months ended June 30, 1998 (unaudited)................................. F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-8 Balance Sheets as of December 31, 1997 and 1996............. F-9 Statements of Operations for the years ended December 31, 1997 and 1996............................................. F-10 Statements of Partners' Deficit for the years ended December 31, 1997 and 1996......................................... F-11 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-12 Notes to Financial Statements............................... F-13 Independent Auditors' Report................................ F-17 Balance Sheets as of December 31, 1996 and 1995............. F-18 Statements of Operations for the years ended December 31, 1996 and 1995............................................. F-19 Statements of Partners' Deficit for the years ended December 31, 1996 and 1995......................................... F-20 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-21 Notes to Financial Statements............................... F-22
F-1 2313 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 70,022 Receivables and Deposits.................................... 90,893 Restricted Escrows.......................................... 1,444,809 Other Assets................................................ (73,266) Investment Property: Land...................................................... $ 1,439,962 Building and related personal property.................... 18,384,219 ----------- 19,824,181 Less: Accumulated depreciation............................ (8,597,170) 11,227,011 ----------- ----------- Total Assets...................................... $12,759,469 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 34,465 Other Accrued Liabilities................................... 425,224 Property Taxes Payable...................................... 559,290 Tenant Security Deposits.................................... 96,076 Notes Payable............................................... 17,880,000 Partners' Deficit........................................... (6,235,586) ----------- Total Liabilities and Partners' Capital........... $12,759,469 ===========
F-2 2314 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Revenues: Rental Income............................................. $1,701,022 Other Income.............................................. 122,569 ---------- Total Revenues.................................... 1,823,591 Expenses: Operating Expenses........................................ 585,258 General and Administrative Expenses....................... 108,987 Depreciation Expense...................................... 303,494 Interest Expense.......................................... 607,100 Property Tax Expense...................................... 238,192 ---------- Total Expenses.................................... 1,843,031 Net (loss)........................................ $ (19,440) ==========
F-3 2315 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Operating Activities: Net Income (loss)......................................... $ (19,440) Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 303,494 Changes in accounts: Receivables and deposits and other assets............ 175,868 Accounts Payable and accrued expenses................ (318,078) ---------- Net cash provided by (used in) operating activities........................................ 141,844 ---------- Investing Activities: Property improvements and replacements.................... (110,057) Net (increase)/decrease in restricted escrows............. (148,504) ---------- Net cash provided by (used in) investing activities........................................ (258,561) ---------- Financing Activities: Distributions to partners................................. -- Payments on mortgage...................................... ---------- Net cash provided by (used in) financing activities........................................ -- ---------- Net increase (decrease) in cash and cash equivalents....................................... (116,717) Cash and cash equivalents at beginning of year.............. 186,739 ---------- Cash and cash equivalents at end of period.................. $ 70,022 ==========
F-4 2316 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Burnsville Apartments Limited Partnership as of June 30, 1998 and for the six months ended June 30, 1998 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 2317 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 1997 AND 1996 F-6 2318 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-8 Financial Statements Balance Sheets............................................ F-9 Statements of Operations.................................. F-10 Statements of Partners' Deficit........................... F-11 Statements of Cash Flows.................................. F-12 Notes to Financial Statements............................. F-13
F-7 2319 INDEPENDENT AUDITORS' REPORT To the Partners Burnsville Apartments Limited Partnership We have audited the accompanying balance sheets of Burnsville Apartments Limited Partnership as of December 31, 1997 and 1996, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Burnsville Apartments Limited Partnership as of December 31, 1997 and 1996, and the results of its operations, the changes in partners' deficit and cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDER & SILVERMAN Bethesda, Maryland February 4, 1998 F-8 2320 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, ASSETS
1997 1996 ----------- ----------- Investment in Real Estate Land...................................................... $ 1,404,749 $ 1,404,749 Building, improvements and personal property, less accumulated depreciation of $8,293,676 and $7,686,688, respectively........................................... 10,015,700 10,297,841 ----------- ----------- 11,420,449 11,702,590 ----------- ----------- Other Assets Cash and cash equivalents................................. 186,739 143,331 Tenant security deposits -- funded........................ 87,961 113,783 Accounts receivable....................................... 26,652 3,474 Prepaid expenses.......................................... 1,178 8,123 Bond reserve fund......................................... 580,300 580,300 Interest reserve.......................................... 716,005 634,141 Financing fees, net of accumulated amortization of $446,291 and $392,696, respectively.................... 89,660 143,255 ----------- ----------- $13,108,944 $13,328,997 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities Applicable to Investment in Real Estate Mortgage payable.......................................... $17,880,000 $17,880,000 Other Liabilities Accounts payable and accrued expenses..................... 674,289 708,504 Accrued interest -- mortgage.............................. 386,876 386,872 Security deposits payable................................. 108,032 88,511 Note payable -- general partner........................... 275,892 275,892 ----------- ----------- 19,325,089 19,339,779 ----------- ----------- Commitments................................................. -- -- Partners' Deficit........................................... (6,216,145) (6,010,782) ----------- ----------- $13,108,944 $13,328,997 =========== ===========
See notes to financial statements F-9 2321 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31,
1997 1996 ---------- ---------- Revenue Rental income............................................. $3,381,715 $3,224,453 Other income.............................................. 169,111 156,170 Less: Vacancies........................................... (106,642) (152,672) Concessions......................................... (36,253) (95,388) ---------- ---------- Total revenue..................................... 3,407,931 3,132,563 ---------- ---------- Operating expenses Leasing................................................... 127,083 197,225 General and administrative................................ 224,406 85,300 Management fees........................................... 160,843 155,150 Utilities................................................. 253,875 260,103 Repairs and maintenance................................... 257,478 228,453 Janitorial................................................ 67,830 64,982 Painting and decorating................................... 71,051 80,068 Insurance................................................. 64,458 62,661 Taxes..................................................... 533,780 518,956 ---------- ---------- Total operating expenses.......................... 1,760,804 1,652,898 ---------- ---------- Other (income) expenses Depreciation.............................................. 606,988 585,190 Amortization.............................................. 53,595 53,595 Interest income........................................... (72,041) (69,366) Interest expense -- mortgage.............................. 1,160,604 1,160,600 Bond fees................................................. 36,516 49,970 Other expenses............................................ 66,828 47,516 ---------- ---------- Total other (income) expenses..................... 1,852,490 1,827,505 ---------- ---------- Net Loss.......................................... $ (205,363) $ (347,840) ========== ==========
See notes to financial statements F-10 2322 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' DEFICIT YEARS ENDED DECEMBER 31, 1997 AND 1996 Partners' deficit, December 31, 1995........................ $(5,662,942) Net loss.................................................... (347,840) ----------- Partners' deficit, December 31, 1996........................ (6,010,782) Net loss.................................................... (205,363) ----------- Partners' deficit, December 31, 1997........................ $(6,216,145) ===========
See notes to financial statements F-11 2323 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1997 1996 ---------- ---------- Cash flows from operating activities Net loss.................................................. $ (205,363) $ (347,840) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation........................................... 606,988 585,190 Amortization........................................... 53,595 53,595 (Increase) decrease in accounts receivable............. (23,178) 4,047 Increase in interest reserve........................... (81,864) (119,671) (Decrease) increase in accounts payable and accrued expenses.............................................. (34,215) 94,639 Increase in accrued interest........................... 4 -- Net security deposits received (paid).................. 45,343 (12,458) Decrease in prepaid expenses........................... 6,945 1,674 ---------- ---------- Net cash provided by operating activities......... 368,255 259,176 ---------- ---------- Cash flows from investing activities Investment in real estate.............................. (324,847) (222,071) ---------- ---------- Net cash used in investing activities............. (324,847) (222,071) ---------- ---------- Net Increase in Cash and Cash Equivalents......... 43,408 37,105 Cash and cash equivalents, beginning........................ 143,331 106,226 ---------- ---------- Cash and cash equivalents, end.............................. $ 186,739 $ 143,331 ========== ========== Supplemental disclosure of cash flow information Cash paid during the year for interest.............................. $1,160,600 $1,160,604 ========== ==========
See notes to financial statements F-12 2324 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Burnsville Apartments Limited Partnership ("the Partnership") was formed as a limited partnership under the laws of the State of Minnesota on May 12, 1983, for the purpose of developing, constructing and operating a multi-family housing project. The project consists of 400 units and is operating under the name of The Woods of Burnsville. The Partnership has entered into an agreement with the City of Burnsville which provides for the rental of at least 20% of the units to tenants whose income does not exceed 80% of the median area income. This restriction is necessary in order for the Partnership to comply with the provisions of the Internal Revenue Code governing preservation of the tax-exempt status of the bonds issued by the City of Burnsville. Investment in Real Estate Investment in real estate is carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives on the straight-line method. For income tax purposes, accelerated methods and lives are used. Amortization Financing fees are being amortized over the term of the mortgage loan using the straight-line method. Income Taxes No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Partnership and tenants of the property are operating leases. Cash Equivalents For purposes of the statements of cash flows, the Partnership considers all highly liquid investments to be cash equivalents. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTE B -- FINANCING A first mortgage in the amount of $16,580,000 is due August 1, 1999, with semi-annual payments of interest only at 7% per annum until maturity ($580,300 is being held in a bond reserve fund by the trustee to fund interest payments on the bonds, if necessary). The City of Burnsville, Minnesota, has issued a 1989 series of tax-exempt bonds, which are secured by an irrevocable letter-of-credit for $17,218,330 ($16,580,000 to pay principal on the bonds and $638,330 to pay interest on the bonds or the portion of the bonds representing accrued interest). The Partnership is obligated to reimburse the lender for any amount drawn on the letter-of- F-13 2325 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) credit. There was no outstanding balance at December 31, 1997. The mortgage is secured by the rental property and an assignment of all project rents and leases. The Partnership has established an interest reserve account to pay the semi-annual interest payments due February and August of each year. At December 31, 1997 and 1996, the interest reserve balance is $716,005 and $634,141, respectively. A second mortgage in the amount of $550,000 is noninterest bearing and is due August 1, 1999. This note is secured by the rental property and an assignment of all project rents and leases and is subordinate to the first mortgage. The remaining debt is evidenced by a third mortgage in the amount of $750,000, which is noninterest bearing and is due August 1, 1999. This note requires the payment of bonus interest up to $250,000 based on the net proceeds received in the event of a sale or refinancing of the property. Such interest will be expensed, if applicable, upon a sale or refinancing. This note is also secured by the rental property and an assignment of all project rents and leases and is subordinate to the first and second mortgages. Bond fees of $36,516 and $49,970 related to the administration of the bonds were charged to operations during 1997 and 1996, respectively. NOTE C -- RELATED PARTY TRANSACTION The project was managed through October 27, 1997 by Winthrop Management, an affiliate of the general partner, which receives an annual fee of 5% of the gross receipts of the property. Property management fees of $132,487 and $155,150 were charged to operations during 1997 and 1996, respectively. On October 28, 1997, the Partnership terminated Winthrop Management as the managing agent, and appointed Insignia Residential Group, L.P. ("Insignia") the new management agent. (See note F). The management agreement provides for a management fee of 5% of gross receipts of the property. Property management fees of $28,356 were charged to operations during 1997. At December 31, 1997, unpaid management fees totaled $14,178. NOTE D -- COMMITMENT The Partnership is required to provide additional capital up to $750,000 to fund future debt service shortfalls. Minneapolis II, the general partner, agreed to fund up to $750,000 to the Partnership for these payments. Advances from Minneapolis II totaling $275,892 were outstanding as of December 31, 1997 and 1996, respectively. This loan is noninterest bearing and due on August 1, 1999. This loan is equal in priority to the second mortgage and is collateralized by the rental property. NOTE E -- CONCENTRATION OF CREDIT NOTE The Partnership maintains its cash balances in three banks. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000 by each bank. As of December 31, 1997, the uninsured portion of the cash balances held at one of the banks was $276,155. NOTE F -- OTHER INFORMATION On October 28, 1997, Insignia Financial Group ("IFG") acquired 100% of the class B stock of First Winthrop Corporation ("FWC"). FWC is an affiliate of the general partner. F-14 2326 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 [WINTHROP LOGO] F-15 2327 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-17 Financial Statements Balance Sheets............................................ F-18 Statements of Operations.................................. F-19 Statements of Partners' Deficit........................... F-20 Statements of Cash Flows.................................. F-21 Notes to Financial Statements............................. F-22
F-16 2328 INDEPENDENT AUDITORS' REPORT To the Partners Burnsville Apartments Limited Partnership We have audited the accompanying balance sheets of Burnsville Apartments Limited Partnership as of December 31, 1996 and 1995, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Burnsville Apartments Limited Partnership as of December 31, 1996 and 1995, and the results of its operations, the changes in partners' deficit and cash flows for the years then ended, in conformity with generally accepted accounting principles. Bethesda, Maryland February 14, 1997 F-17 2329 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, ASSETS
1996 1995 ----------- ----------- Investment in Real Estate Land...................................................... $ 1,404,749 $ 1,404,749 Building, improvements and personal property, less accumulated depreciation of $7,686,688 and $7,101,498............................................. 10,297,841 10,660,960 ----------- ----------- 11,702,590 12,065,709 Other Assets Cash and cash equivalents................................. 143,331 106,226 Tenant security deposits -- funded........................ 113,783 102,087 Accounts receivable....................................... 3,474 7,521 Prepaid expenses.......................................... 8,123 9,797 Bond reserve fund......................................... 580,300 580,300 Interest reserve.......................................... 634,141 514,470 Financing fees, net of accumulated amortization of $392,696 and $339,101.................................. 143,255 196,850 ----------- ----------- $13,328,997 $13,582,960 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities Applicable to Investment in Real Estate Mortgage payable.......................................... $17,880,000 $17,880,000 Other Liabilities Accounts payable and accrued expenses..................... 708,504 613,869 Accrued interest.......................................... 386,872 386,868 Security deposits payable................................. 88,511 89,273 Note payable.............................................. 275,892 275,892 ----------- ----------- 19,339,779 19,245,902 Commitments................................................. -- -- Partners' Deficit........................................... (6,010,782) (5,662,942) ----------- ----------- $13,328,997 $13,582,960 =========== ===========
See notes to financial statements F-18 2330 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31,
1996 1995 ---------- ---------- Revenue Rental income............................................. $3,224,453 $3,068,213 Other income.............................................. 156,170 146,372 Less: Vacancies........................................... (152,672) (130,468) Concessions......................................... (95,388) (100,546) ---------- ---------- Total revenue..................................... 3,132,563 2,983,571 ---------- ---------- Operating expenses Leasing................................................... 197,225 122,082 General and administrative................................ 85,300 103,575 Management fees........................................... 155,150 148,243 Utilities................................................. 260,103 223,383 Repairs and maintenance................................... 228,453 200,464 Janitorial................................................ 64,982 66,724 Painting and decorating................................... 80,068 65,242 Insurance................................................. 62,661 65,484 Taxes..................................................... 518,956 477,552 ---------- ---------- Total operating expenses.......................... 1,652,898 1,472,749 ---------- ---------- Other (income) expenses Depreciation.............................................. 585,190 577,484 Amortization.............................................. 53,595 53,595 Interest income........................................... (69,366) (66,018) Interest expenses -- mortgage............................. 1,160,600 1,160,600 Bond fees................................................. 49,970 50,294 Other expenses............................................ 47,516 14,634 ---------- ---------- Total other (income) expenses..................... 1,827,505 1,790,589 ---------- ---------- Net Loss.......................................... $ (347,840) $ (279,767) ========== ==========
See notes to financial statements F-19 2331 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' DEFICIT YEARS ENDED DECEMBER 31, 1996 AND 1995 Partners' deficit, December 31, 1994........................ $(5,383,175) Net loss.................................................... (279,767) ----------- Partners' deficit, December 31, 1995........................ (5,662,942) Net loss.................................................... (347,840) ----------- Partners' deficit, December 31, 1996........................ $(6,010,782) ===========
See notes to financial statements F-20 2332 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1996 1995 ---------- ---------- Cash flows from operating activities Net loss.................................................. $ (347,840) $ (279,767) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation........................................... 585,190 577,484 Amortization........................................... 53,595 53,595 (Increase) decrease in accounts receivable............. 4,047 (3,095) Increase in interest reserve........................... (119,671) (127,916) Increase (decrease) in accounts payable and accrued expenses.............................................. 94,639 (61,377) Net security deposits paid............................. (12,458) (6,123) (Increase) decrease in prepaid expenses................ 1,674 (65) ---------- ---------- Net cash provided by operating activities......... 259,176 152,736 ---------- ---------- Cash flows from investing activities Investment in real estate.................................................... (222,071) (194,255) ---------- ---------- Net cash used in investing activities............. (222,071) (194,255) ---------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents..................................... 37,105 (41,519) Cash and cash equivalents, beginning........................ 106,226 147,745 ---------- ---------- Cash and cash equivalents, end.............................. $ 143,331 $ 106,226 ========== ========== Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $1,160,604 $1,160,600 ========== ==========
See notes to financial statements F-21 2333 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Burnsville Apartments Limited Partnership ("the partnership") was formed as a limited partnership under the laws of the State of Minnesota on May 12, 1983, for the purpose of developing, constructing and operating a multifamily housing project. The project consists of 400 units and is operating under the name of The Woods of Burnsville. The partnership has entered into an agreement with the City of Burnsville which provides for the rental of at least 20% of the units to tenants whose income does not exceed 80% of the median area income. This restriction is necessary in order for the partnership to comply with the provisions of the Internal Revenue Code governing preservation of the tax exempt status of the bonds issued by the City of Burnsville. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Investment in Real Estate Investment in real estate is carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives on the straight-line method. For income tax purposes, accelerated methods and lives are used. Amortization Financing fees are being amortized over the term of the mortgage loan using the straight-line method. Income Taxes No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the partnership and tenants of the property are operating leases. Cash Equivalents For purposes of the statements of cash flows, the partnership considers all highly liquid investments to be cash equivalents. The carrying amount of $132,125 approximates fair value because of the short maturity of this instrument. NOTE B -- FINANCING A first mortgage in the amount of $16,580,000 is due August 1, 1999, with semiannual payments of interest only at 7% per annum until maturity ($580,300 is being held in a bond reserve fund by the trustee to fund interest payments on the bonds, if necessary). The City of Burnsville, Minnesota, has issued a 1989 series of tax-exempt bonds, which are secured by an irrevocable letter-of-credit for $17,218,330 ($16,580,000 to pay principal on the bonds and $638,330 to pay interest on the bonds or the portion of the bonds representing F-22 2334 BURNSVILLE APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) accrued interest). The partnership is obligated to reimburse the Lender for any amount drawn on the letter-of-credit. There was no outstanding balance at December 31, 1996. The mortgage is secured by the rental property and an assignment of all project rents and leases. The partnership has established an interest reserve account to pay the semiannual interest payments due February and August of each year. At December 31, 1996, the interest reserve balance is $634,141. A second mortgage in the amount of $550,000 is noninterest bearing and is due August 1, 1999. This note is secured by the rental property and an assignment of all project rents and leases and is subordinate to the first mortgage. The remaining debt is evidenced by a third mortgage in the amount of $750,000, which is noninterest bearing and is due August 1, 1999. This note requires the payment of bonus interest up to $250,000 based on the net proceeds received in the event of a sale or refinancing of the property. Such interest will be expensed, if applicable, upon a sale or refinancing. This note is also secured by the rental property and an assignment of all project rents and leases and is subordinate to the first and second mortgages. Bond fees of $49,970 and $50,294 related to the administration of the bonds were charged to operations during 1996 and 1995, respectively. NOTE C -- RELATED PARTY TRANSACTION The project is currently managed by Winthrop Management, an affiliate of the general partner, which receives an annual fee of 5% of the gross receipts of the property. Property management fees of $155,150 and $148,243 were charged to operations during 1996 and 1995, respectively. NOTE D -- COMMITMENT The partnership is required to provide additional capital up to $750,000 to fund future debt service shortfalls. Minneapolis II, the general partner, agreed to fund up to $750,000 to the partnership for these payments. Advances from Minneapolis II totaling $275,892 were outstanding as of December 31, 1996 and 1995, respectively. This loan is noninterest bearing and due on August 1, 1999. This loan is equal in priority to the second mortgage and is collateralized by the rental property. F-23 2335 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 2336 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 2337 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 September , 1998 A-3 2338 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF NORTHBROOK APARTMENTS, 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 IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR EXCHANGE YOUR UNITS SOLELY FOR OUR OFFER IF MORE UNITS ARE TENDERED TO US, WE SECURITIES. HOWEVER, YOU WILL RECOGNIZE WILL GENERALLY ACCEPT UNITS ON A PRO RATA TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR BASIS ACCORDING TO THE NUMBER OF UNITS TENDERED UNITS FOR CASH. BY 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 2339 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-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 Northbrook Apartments, 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-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-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-36 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-37 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-41 Fees and Expenses............................ S-42 Accounting Treatment......................... S-42
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-43 Distributions................................ S-43 Allocation................................... S-44 Liquidation Preference....................... S-44 Redemption................................... S-45 Voting Rights................................ S-45 Restrictions on Transfer..................... S-45 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-48 CERTAIN FEDERAL INCOME TAX MATTERS............. S-51 Tax Consequences of Exchanging Units Solely for OP Units............................... S-51 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-51 Tax Consequences of Exchanging Units Solely for Cash................................... S-52 Adjusted Tax Basis........................... S-52 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-53 Passive Activity Losses...................... S-53 Foreign Offerees............................. S-54 Certain Tax Consequences to Non-Tendering and Partially-Tendering Unitholders............ S-54 VALUATION OF UNITS............................. S-55 FAIRNESS OF THE OFFER.......................... S-57 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-57 Fairness to Unitholders who Tender their Units...................................... S-58 Fairness to Unitholders who do not Tender their Units................................ S-58 Comparison of Consideration to Alternative Consideration.............................. S-58 Allocation of Consideration.................. S-59 STANGER ANALYSIS............................... S-60 Experience of Stanger........................ S-60 Summary of Materials Considered.............. S-60 Summary of Reviews........................... S-61 Conclusions.................................. S-62 Assumptions, Limitations and Qualifications............................. S-62 Compensation and Material Relationships...... S-63 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-64 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-69 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 2340
PAGE ---- YOUR PARTNERSHIP............................... S-74 General...................................... S-74 Your Partnership and its Property............ S-74 Property Management.......................... S-74 Investment Objectives and Policies; Sale or Financing of Investments................... S-74 Capital Replacement.......................... S-75 Borrowing Policies........................... S-75 Competition.................................. S-75 Legal Proceedings............................ S-75 Selected Financial Information............... S-75 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-77 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79
PAGE ---- Distributions and Transfers of Units......... S-79 Beneficial Ownership of Interests in Your Partnership................................ S-80 Compensation Paid to the General Partner and its Affiliates............................. S-80 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-81 EXPERTS........................................ S-81 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 2341 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 Northbrook Apartments, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 2342 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 2343 - 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 $3,991.94 per unit for the six months ended June 30, 1998 (equivalent to $4,983.88 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 $0.5625 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 distributions of $ 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 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 2344 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer 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. In addition, 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2345 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 100% of 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? 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: 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 2346 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 2347 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. 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. 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 5 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. 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 S-7 2348 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. 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 Code. The particular tax consequences to you of the exchange 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 2349 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the 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 2350 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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 2351 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, 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 2352 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of Northbrook Partners, Ltd., the original limited partner. In the absence of such consent, your only 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 2353 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 S-13 2354 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 2355 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 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 2356 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 2357 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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 Consideration 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 S-17 2358 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-1 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 is not subject to such limitations. 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 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 generated in that capacity from your partnership. The property manager which received management fees of $42,282 in 1996, $42,038 in 1997 and $21,669 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. S-18 2359 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 Your Partnership and its Property. Northbrook Apartments, Ltd. is a Mississippi limited partnership which was formed on September 28, 1979 for the purpose of owning and operating a single apartment property located in Ridgeland, Mississippi, known as "Pinebrook Apartments." In 1979, it completed a private placement of units that raised net proceeds of approximately $1,600,000. Pinebrook Apartments consist of 160 apartment units. Your partnership has no employees. Property Management. Since November 1992, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,460,180, payable to FNMA and GMAC, which bears interest at a rate of 7.83%. The mortgage debt is due in October 2003. Your partnership also has a second mortgage note outstanding of $80,325, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2360 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, 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 2361
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 2362 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 2363
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 2364 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 2365 SUMMARY FINANCIAL INFORMATION OF NORTHBROOK APARTMENTS, LTD. The summary financial information of Northbrook Apartments, Ltd. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Northbrook Apartments, Ltd. 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 of Your Partnership" included herein. See "Index to Financial Statements." NORTHBROOK APARTMENTS, LTD.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues......... 429,701 420,054 874,168 866,804 960,339 812,226 749,964 Net Income/(Loss)...... 60,872 93,943 109,969 111,904 193,647 (23,876) (126,551) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation... 893,561 904,406 905,362 908,108 900,812 866,906 860,657 Total Assets........... 1,597,930 1,663,791 1,719,137 1,768,925 1,844,682 1,683,320 1,709,488 Mortgage Notes Payable, including Accrued Interest................... 2,506,599 2,535,242 2,523,775 2,551,128 2,576,442 2,599,868 2,621,716 Partners' Capital/(Deficit).......... (968,978) (916,348) (904,318) (877,797) (822,575) (1,014,427) (990,551)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $3,991.94 $4,000.00
S-25 2366 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. 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 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 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, 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 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. S-26 2367 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 Code. 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 therefore 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 S-27 2368 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. 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 for the six months ended June 30, 1998 were $3,991.94 per unit (equivalent to $4,983.88 on an annual 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 an 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 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 S-28 2369 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 prohibits any transfer of units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the offer. 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. MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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. S-29 2370 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of Northbrook Partners, Ltd., the original limited partner. In the absence of such consent, your only option for liquidation would be to sell your units in a private transaction. Any such sale S-30 2371 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 would 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 apartment 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 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 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 2372 - 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 2373 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 and the expiration of the offer. See "Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. S-33 2374 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 2375 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. 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 S-35 2376 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." 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. 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. S-36 2377 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, (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 9:00 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 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, Denver, Colorado 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. S-37 2378 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-38 2379 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 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 S-39 2380 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 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 S-40 2381 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-41 2382 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. 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. DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. S-42 2383 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 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 S-43 2384 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 payment. 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 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 S-44 2385 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-45 2386 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-46 2387 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-47 2388 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-48 2389 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-49 2390 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-50 2391 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-51 2392 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-52 2393 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-53 2394 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 UNITHOLDERS 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 unitholders who do not tender all of their units (a "Remaining Unitholders") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Unitholder will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Unitholders in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Unitholder'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 Unitholders 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 Unitholders 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 unitholder 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 unitholders. In the case of a Remaining Unitholder 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 unitholder's taxable income for the year of Termination. S-54 2395 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value, 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-55 2396 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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-56 2397 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS The general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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 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, a third party expert, 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 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 for the six months ended June 30, 1998 were $3,991.94 (equivalent to $4,983.88 on an annual basis). This is S-57 2398 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 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-58 2399 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 Consideration.................................... $ 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. 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-59 2400 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of S-60 2401 your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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 September 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 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 property was 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-61 2402 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-62 2403 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-1. 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 $9,000 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-63 2404 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 Mississippi law for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Pinebrook Apartments. 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 From Operations (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 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, hold, The purpose of the AIMCO Operating Partnership is to lease, mortgage, refinance, maintain, manage, improve, conduct any business that may be lawfully conducted by develop or otherwise deal with or in your partnership's a limited partnership organized pursuant to the property. Subject to restrictions contained in your Delaware Revised Uniform Limited Partnership Act (as partnership's agreement of limited 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-64 2405 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership may not admit The general partner is authorized to issue additional additional limited partners to your partnership. partnership interests in the AIMCO Operating Partnership for any partnership purpose from time to time to the limited partners and to other persons, and to admit such other persons as additional limited partners, on terms and conditions and for such capital contributions as may be established by the general partner in its sole discretion. The net capital contribution need not be equal for all OP Unitholders. No action or consent by the 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 enter into funds or other assets to its subsidiaries or other contracts with its affiliates on terms reasonably persons in which it has an equity investment, and such competitive with those which would be obtained from persons may borrow funds from the AIMCO Operating independent third parties for property or services Partnership, on terms and conditions established in the required by your partnership. The partnership may make sole and absolute discretion of the general partner. To loans to any of the partners for periods of no more the extent consistent with the business purpose of the than one year, with or without interest or security. In AIMCO Operating Partnership and the permitted addition, the partners may make loans to your activities of the general partner, the AIMCO Operating partnership at any time when your partnership is in Partnership may transfer assets to joint ventures, need of additional funds. Such loans will be evidenced limited liability companies, partnerships, by promissory notes which bear interest at a rate the corporations, business trusts or other business lesser of the maximum rate permitted under Mississippi entities in which it is or thereby becomes a law or 10% per annum and which will be payable prior to participant upon such terms and subject to such distributions. 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 on the credit of and enter into restrictions on borrowings, and the general partner has obligations, recourse and nonrecourse, on behalf of full power and authority to borrow money on behalf of your partnership and to give as security therefor any the AIMCO Operating Partnership. The AIMCO Operating of your partnership's property. However, the general Partnership has credit agreements that restrict, among partner may not modify or amend the Mortgage Loan (as other things, its ability to incur indebtedness. See defined in your partnership's agreement of limited "Risk Factors -- Risks of Significant Indebtedness" in partnership) with the result that it will be other than the accompanying Prospectus. a nonrecourse mortgage which provides in general that the mortgagee thereof may look only to the mortgaged property for collection of any sum due under or in connection with the Mortgage (as defined in your partnership's agreement of limited partnership) or the Mortgage Note (as defined in your partnership's agreement of limited partnership).
S-65 2406 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 partner or its duly authorized with a statement of the purpose of such demand and at representative to audit, examine and make copies of the such OP Unitholder's own expense, to obtain a current book, records and accounts of your partnership during list of the name and last known business, residence or business hours upon reasonable notice at the principal mailing address of the general partner and each other office of your partnership or of the general partner. OP Unitholder.
Management Control The general partner of your partnership manages and All management powers over the business and affairs of conducts the business of your partnership. It may take the AIMCO Operating Partnership are vested in AIMCO-GP, any and all actions with respect to your partnership's Inc., which is the general partner. No OP Unitholder property and your partnership without limitation, has any right to participate in or exercise control or except to the extent specifically limited by your management power over the business and affairs of the partnership's agreement of limited partnership or by AIMCO Operating Partnership. The OP Unitholders have law. The limited partner may not take part in the the right to vote on certain matters described under management of the business of your partnership, "Comparison of Ownership of Your Units and AIMCO OP transact any business for your partnership, nor have Units -- Voting Rights" below. The general partner may any power to sign for, bind or subject your partnership not be removed by the OP Unitholders with or without to any liability or obligation. 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 in damages or partner is not liable to the AIMCO Operating otherwise to your partnership or the limited partner Partnership for losses sustained, liabilities incurred for any acts performed by any of them within the scope or benefits not derived as a result of errors in of the authority conferred upon it by your judgment or mistakes of fact or law of any act or partnership's agreement of limited partnership, omission if the general partner acted in good faith. provided that such course of conduct does not The AIMCO Operating Partnership Agreement provides for constitute gross negligence or willful misconduct. In indemnification of AIMCO, or any director or officer of addition, the general partner is entitled to AIMCO (in its capacity as the previous general partner indemnification by your partnership for any act of the AIMCO Operating Partnership), the general performed by it within the scope of the authority partner, any officer or director of general partner or conferred upon it by your partnership's agreement of the AIMCO Operating Partnership and such other persons limited partnership, which does not constitute gross as the general partner may designate from and against negligence or willful misconduct. Such indemnity will all losses, claims, damages, liabilities, joint or be paid out of and to the extent of your partnership several, expenses (including legal fees), fines, assets. 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 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
S-66 2407 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Your partnership's agreement of limited partnership Except in limited circumstances, the general partner does not provide for the removal of a general partner has exclusive management power over the business and by the limited partner. The project general partner may affairs of the AIMCO Operating Partnership. The general resign at any time. The operating general partner may partner may not be removed as general partner of the retire after giving notice to your partnership. Upon AIMCO Operating Partnership by the OP Unitholders with such an event, the limited partner may elect a or without cause. Under the AIMCO Operating Partnership successor operating general partner with the consent of Agreement, the general partner may, in its sole the project general partner. The limited partner may discretion, prevent a transferee of an OP Unit from not transfer its interests 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 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 written consent of all partners. in the AIMCO Operating Partnership Agreement, whereby the general partner may, without the consent of the OP Unitholders, amend the AIMCO Operating Partnership Agreement, amendments to the AIMCO Operating Partnership Agreement require the consent of the holders of a majority of the outstanding Common OP Units, excluding AIMCO and certain other limited exclusions (a "Majority in Interest"). Amendments to the AIMCO Operating Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to compensation for additional services nership is responsible for all expenses incurred rendered. 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-67 2408 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, the limited partner is not personally negligence, no OP Unitholder has personal liability for liable for the debts or liabilities of your partnership the AIMCO Operating Partnership's debts and in excess of its capital contribution which become obligations, and liability of the OP Unitholders for payable pursuant to the terms of your partnership's the AIMCO Operating Partnership's debts and obligations agreement of limited partnership. 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 at all times must partnership agreement, Delaware law generally requires exercise its responsibilities as fiduciaries of your a general partner of a Delaware limited partnership to partnership and the limited partner and in a manner adhere to fiduciary duty standards under which it owes consistent with the objectives of your partnership. The its limited partners the highest duties of good faith, general partner must devote such time and attention to fairness and loyalty and which generally prohibit such your partnership business as may be necessary for the general partner from taking any action or engaging in proper performance of its duties. However, the general any transaction as to which it has a conflict of partner or its affiliates may engage or hold interests interest. The AIMCO Operating Partnership Agreement in business ventures of every kind and description, and expressly authorizes the general partner to enter into, neither your partnership's property nor the partners on behalf of the AIMCO Operating Partnership, a right will have any right in or to such independent ventures of first opportunity arrangement and other conflict or to the income or profits derived therefrom. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-68 2409 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, the applicable law or in the AIMCO ship Agreement, the OP Unitholders approval of Northbrook Partners, Operating Partnership Agreement, have voting rights only with Ltd., the original limited partner, the holders of the Preferred OP respect to certain limited matters is necessary for the general Units will have the same voting such as certain amendments and partners to 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 or sell of all or Prospectus. So long as any institution of bankruptcy substantially all of the assets of Preferred OP Units are outstand- proceedings, an assignment for the your partnership. ing, in addition to any other vote benefit of creditors and certain or consent of partners required by transfers by the general partner of law or by the AIMCO Operating its interest in the AIMCO Operating Partnership Agree- Part-
S-69 2410 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ment, the affirmative vote or nership or the admission of a consent of holders of at least 50% successor general partner. of the outstanding Preferred OP Units will be necessary for Under the AIMCO Operating Partner- effecting any amendment of any of ship Agreement, the general partner the provisions of the Partnership has the power to effect the Unit Designation of the Preferred acquisition, sale, transfer, OP Units that materially and exchange or other disposition of 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- Distributions of Cash from $ per Preferred OP Unit; tribute quarterly all, or such Operation are made from time to provided, however, that at any time portion as the general partner may time, but not less often than and from time to time on or after in its sole and absolute discretion annually and all distributions in the fifth anniversary of the issue determine, of Available Cash (as respect of any calendar year will date of the Preferred OP Units, the defined in the AIMCO Operating be distributed not later than AIMCO Operating Partnership may Partnership Agreement) generated by ninety days after the end of such adjust the annual distribution rate the AIMCO Operating Partnership year. The distributions payable to on the Preferred OP Units to the during such quarter to the general the partners are not fixed in lower of (i) % plus the annual partner, the special limited amount and depend upon the interest rate then applicable to partner and the holders of Common operating 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. Your issued AIMCO non-convertible accordance with their respective partnership has made distri- preferred stock which ranks on a interests in the AIMCO Operating butions in the past and not parity with its Class H Cumu- Partnership on such record date. projected to made distributions in Holders of any other Pre- 1998.
S-70 2411 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 The limited partner may transfer There is no public market for the There is no public market for the his units to any person and be Preferred OP Units and the OP Units. The AIMCO Operating Part- substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the such person if: (1) a written on any securities exchange. The transferability of the OP Units. assignment has been duly executed Preferred OP Units are subject to Until the expiration of one year and acknowledged by the assignor restrictions on transfer as set from the date on which an OP and assignee, (2) the approval of forth in the AIMCO Operating Unitholder acquired OP Units, the general partner which may be Partnership Agreement. subject to certain exceptions, such withheld in the sole and absolute OP Unitholder may not transfer all discretion of the general partner Pursuant to the AIMCO Operating or any portion of its OP Units to has been granted, (3) the Partnership Agreement, until the any transferee without the consent transferee obligates itself to be expiration of one year from the of the general partner, which bound by your partnership's date on which a holder of Preferred consent may be withheld in its sole agreement of limited partnership, OP Units acquired Preferred OP and absolute discretion. After the (4) all other partners consent and Units, subject to certain expiration of one year, such OP (5) the assignor and assignee have exceptions, such holder of Unitholder has the right to complied with such other conditions Preferred OP Units may not transfer transfer all or any portion of its as set forth in your partnership's all or any portion of its Pre- OP Units to any person, subject to agreement of limited partnership. ferred OP Units to any transferee the satisfaction of certain There are no redemption rights without the consent of the general conditions specified in the AIMCO associated with your units. 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
S-71 2412 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-72 2413 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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 consideration 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's 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 own 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 generated in that capacity from your partnership. The property manager which received management fees of $42,282 in 1996, $42,038 in 1997 and $21,669 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's 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'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 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 2414 YOUR PARTNERSHIP GENERAL Northbrook Apartments, Ltd. is a Mississippi limited partnership which raised net proceeds of approximately $1,600,000 in 1979 through a private offering. The promoter for the private offering of your partnership was Angeles Real Estate Corp. Insignia acquired your partnership in November 1992. AIMCO acquired Insignia in October, 1998. There are currently a total of 31 limited partners of your partnership and a total of 31 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on September 28, 1979 for the purpose of owning and operating a single apartment property located in Ridgeland, Mississippi, known as "Pinebrook Apartments." Your partnership's property consists of 160 apartment units. There are 192 one-bedroom apartments and 252 two-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 95% in 1996 and 95% in 1997. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1992, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $42,282, $42,038 and $21,669, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-74 2415 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,460,180, payable to FNMA and GMAC, which bears interest at a rate of 7.83%. The mortgage debt is due in October 2003. Your partnership also has a second mortgage note outstanding of $80,325, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. The Financial Statements have been prepared on an income tax basis. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-75 2416 Below is selected financial information for Northbrook Apartments, Ltd. taken from the financial statements described above. The amounts for 1993 have been derived from audited financial statements which are not included in this Prospectus Supplement. See "Index to Financial Statements."
NORTHBROOK APARTMENTS, LTD. ------------------------------------------------------------------------------------------ JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA Cash and Cash Equivalents........... 386,582 447,678 479,584 532,012 590,714 442,256 357,456 Land & Building..................... 3,053,427 3,010,659 3,037,843 2,986,976 2,930,458 2,852,725 2,763,689 Accumulated Depreciation............ (2,159,866) (2,106,253) (2,132,481) (2,078,868) (2,029,646) (1,985,819) (1,903,032) Other Assets........................ 317,787 311,707 334,191 328,805 353,156 374,158 491,375 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Assets............... 1,597,930 1,663,791 1,719,137 1,768,925 1,844,682 1,683,320 1,709,488 ========== ========== ========== ========== ========== ========== ========== Mortgage & Accrued Interest......... 2,506,599 2,535,242 2,523,775 2,551,128 2,576,442 2,599,868 2,621,716 Other Liabilities................... 60,309 44,897 99,680 95,594 90,815 97,879 78,323 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Liabilities.......... 2,566,908 2,580,139 2,623,455 2,646,722 2,667,257 2,697,747 2,700,039 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Partners Capital (Deficit).......... (968,978) (916,348) (904,318) (877,797) (822,575) (1,014,427) (990,551) ========== ========== ========== ========== ========== ========== ==========
NORTHBROOK APARTMENTS, LTD. ------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS DATA Rental Revenue............................ 406,742 397,369 826,494 823,076 771,487 770,691 722,535 Other Income.............................. 22,959 22,685 47,674 43,728 188,852 41,535 27,429 --------- --------- --------- --------- --------- --------- --------- Total Revenue.................... 429,701 420,054 874,168 866,804 960,339 812,226 749,964 --------- --------- --------- --------- --------- --------- --------- Operating Expenses........................ 200,126 159,895 406,975 401,047 406,285 391,476 429,796 General & Administrative.................. 22,044 16,182 40,169 43,006 44,493 78,235 87,205 Depreciation.............................. 27,385 27,385 54,770 49,222 43,827 83,195 80,657 Interest Expense.......................... 99,855 101,145 218,593 220,664 223,709 235,105 195,363 Property Taxes............................ 19,419 21,504 44,849 40,961 48,378 48,091 43,434 --------- --------- --------- --------- --------- --------- --------- Total Expenses................... 368,829 326,111 764,199 754,900 766,692 836,102 836,455 --------- --------- --------- --------- --------- --------- --------- Net Income................................ 60,872 93,943 109,969 111,904 193,647 (23,876) (86,491) ========= ========= ========= ========= ========= ========= ========= Extraordinary loss........................ (40,060) --------- --------- --------- --------- --------- --------- --------- Net Income after Extraordinary Loss....... (126,551) ========= ========= ========= ========= ========= ========= =========
S-76 2417 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $60,872 for the six months ended June 30, 1998, compared to $93,943 for the six months ended June 30, 1997, a decrease in net income of $33,071, or 35.20%. This decrease was primarily the result of a greater increase in operating expenses than in rental revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $429,701 for the six months ended June 30, 1998, compared to $420,054 for the six months ended June 30, 1997, an increase of $9,647, or 2.30%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $200,126 for the six months ended June 30, 1998, compared to $159,895 for the six months ended June 30, 1997, an increase of $40,231 or 25.16%. This increase was primarily the result of an increase in repairs and maintenance and marketing expenses. Management expenses totaled $21,669 for the six months ended June 30, 1998, compared to $21,350 for the six months ended June 30, 1997, an increase of $319, or 1.49%. General and Administrative Expenses General and administrative expenses totaled $22,044 for the six months ended June 30, 1998 compared to $16,182 for the six months ended June 30, 1997, an increase of $5,862 ,or 36.23%. This increase was primarily the result of and increase in computer maintenance and office supplies. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $99,855 for the six months ended June 30, 1998, compared to $101,145 for the six months ended June 30, 1997, a decrease of $1,290, or 1.28%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $109,969 for the year ended December 31, 1997, compared to $111,904 for the year ended December 31, 1996, a decrease in net income of $1935, or 1.73%. Revenues Rental and other property revenues from the partnership's property totaled $874,168 for the year ended December 31, 1997, compared to $866,804 for the year ended December 31, 1996, an increase of $7,364, or .85%. S-77 2418 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $406,975 for the year ended December 31, 1997, compared to $401,047 for the year ended December 31, 1996, an increase of $5,928 or 1.48%. Management expenses totaled $42,038 for the year ended December 31, 1997, compared to $42,282 for the year ended December 31, 1996, a decrease of $244, or 0.58%. General and Administrative Expenses General and administrative expenses totaled $40,169 for the year ended December 31, 1997 compared to $43,006 for the year ended December 31, 1996, a decrease of $2,837 or 6.60%. The decrease is primarily due to a reduction in office and computer supplies expense. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $218,593 for the year ended December 31, 1997, compared to $220,664 for the year ended December 31, 1996, a decrease of $2,071, or 0.94%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $111,904 for the year ended December 31, 1996, compared to $193,647 for the year ended December 31, 1995. The decrease in net income of $81,743, or 42.21% was primarily the result of a decrease in rental revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $866,804 for the year ended December 31, 1996, compared to $960,339 for the year ended December 31, 1995, a decrease of $93,535, or 9.74%. This decrease was primarily the result of a settlement agreement payment received in 1995 with respect to an AMIT Obligation. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $401,047 for the year ended December 31, 1996, compared to $406,285 for the year ended December 31, 1995, a decrease of $5,238 or 1.29%. Management expenses totaled $42,282 for the year ended December 31, 1996, compared to $41,036 for the year ended December 31, 1995, an increase of $1,246, or 3.04%. General and Administrative Expenses General and administrative expenses totaled $43,006 for the year ended December 31, 1996 compared to $44,493 for the year ended December 31, 1995, a decrease of $1,487 or 3.34%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $220,664 for the year ended December 31, 1996, compared to $223,709 for the year ended December 31, 1995, a decrease of $3,045, or 1.36%. S-78 2419 Liquidity and Capital Resources As of June 30, 1998, your partnership had $386,582 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 are not liable, responsible or accountable in damages or otherwise to your partnership or the limited partner for any acts performed by any of them within the scope of the authority conferred upon it by your partnership's agreement of limited partnership, provided that such course of conduct did not constitute gross 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 a provision in your partnership's agreement of limited partnership. The general partner of your partnership is owned by AIMCO. See "Conflicts of Interest". The general partner is entitled to indemnification by your partnership for any act performed by it within the scope of the authority conferred upon them by your partnership's agreement of limited partnership, which does not constitute gross negligence or willful misconduct. Such indemnity will be paid out of and to the extent of your partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $4,329.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 0.00 1995........................................................ 0.00 1996........................................................ 5,000.00 1997........................................................ 4,000.00 1998 (through June 30)...................................... 3,991.94
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions S-79 2420 (i.e., excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0 0 1995......................... 0 0 0 1996......................... 0 0 0 1997......................... 1 3.23% 1 1998 (through June 30)....... 0 0 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $23,357 1995........................................................ 25,318 1996........................................................ 25,074 1997........................................................ 22,906 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $41,036 1996........................................... 42,282 1997........................................... 42,038 1998 (through June 30)......................... 21,669
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 company paid to the property manager or AIMCO and its affiliates. S-80 2421 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 -- income tax basis of Northbrook Apartments, Ltd. at December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by KPMG, Peat Marwick LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-81 2422 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 (WITH INDEPENDENT AUDITORS' REPORT THEREON) 2423 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet -- Income Tax Basis as of June 30, 1998 (unaudited).......................................... F-2 Condensed Statements of Operations -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)... F-3 Condensed Statements of Cash Flows -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Consolidated Statement of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1997....... F-8 Consolidated Statement of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the year ended December 31, 1997................................... F-9 Consolidated Statement of Cash Flows -- Income Tax Basis for the year ended December 31, 1997......................................... F-10 Notes to Consolidated Financial Statements -- Income Tax Basis..................................................... F-11 Independent Auditors' Report................................ F-15 Consolidated Statement of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1996....... F-16 Consolidated Statement of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the year ended December 31, 1996................................... F-17 Consolidated Statement of Cash Flows -- Income Tax Basis for the year ended December 31, 1996......................................... F-18 Notes to Consolidated Financial Statements -- Income Tax Basis..................................................... F-19 Independent Auditors' Report................................ F-23 Consolidated Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1995 and 1994...................................................... F-24 Consolidated Statements of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1995 and 1994.......................... F-25 Consolidated Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1995 and 1994............ F-26 Notes to Consolidated Financial Statements -- Income Tax Basis..................................................... F-27
F-1 2424 NORTHBROOK PARTNERS, LIMITED CONDENSED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS CAPITAL INCOME TAX BASIS JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 386,582 Receivables and Deposits.................................... 22,563 Restricted Escrows.......................................... 71,388 Other Assets................................................ 223,836 Investment Property: Land...................................................... 185,500 Building and related personal property.................... 2,867,927 ---------- 3,053,427 Less: Accumulated depreciation............................ (2,159,866) 893,561 ---------- ---------- Total Assets...................................... $1,597,930 ========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ -- Other Accrued Liabilities................................... 22,207 Property taxes payable...................................... 20,117 Tenant security deposits.................................... 17,985 Notes Payable............................................... 2,506,599 Partners' Capital........................................... (968,978) ---------- Total Liabilities and Partners' Capital........... $1,597,930 ==========
See notes to interim financial statements. F-2 2425 NORTHBROOK PARTNERS, LIMITED CONDENSED STATEMENTS OF REVENUE AND EXPENSES INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $406,742 $397,369 Other Income.............................................. 22,959 22,685 -------- -------- Total Revenues.................................... 429,701 420,054 Expenses: Operating Expenses........................................ 200,126 159,895 General and Administrative Expenses....................... 22,044 16,182 Depreciation Expense...................................... 27,385 27,385 Interest Expense.......................................... 99,855 101,145 Property Tax Expense...................................... 19,419 21,504 -------- -------- Total Expenses.................................... 368,829 326,111 Net Income........................................ $ 60,872 $ 93,943 ======== ========
See notes to interim financial statements. F-3 2426 NORTHBROOK PARTNERS, LIMITED CONDENSED STATEMENTS OF CASH FLOWS INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 --------- --------- Operating Activities: Net Income (loss)......................................... $ 60,872 $ 93,943 Adjustments to reconcile net income (loss) to net cash provided by operating Activities Depreciation and Amortization............................. 27,385 27,385 Changes in accounts:...................................... -- -- Receivables and deposits and other assets.............. 17,979 18,518 Accounts Payable and accrued expenses.................. (39,903) (50,899) --------- --------- Net cash provided by (used in) operating activities...................................... 66,333 88,947 --------- --------- Investing Activities Property improvements and replacements.................... (15,584) (23,683) Net (increase)/decrease in restricted escrows............. (1,575) (1,420) --------- --------- Net cash provided by (used in) investing activities...................................... (17,159) (25,103) --------- --------- Financing Activities Payments on mortgage...................................... (17,176) (15,886) Partners' Distributions................................... (125,000) (132,292) --------- --------- Net cash provided by (used in) financing activities...................................... (142,176) (148,178) --------- --------- Net increase (decrease) in cash and cash equivalents...... (93,002) (84,334) Cash and cash equivalents at beginning of year............ 479,584 532,012 --------- --------- Cash and cash equivalents at end of period........ $ 386,582 $ 447,678 ========= =========
See notes to interim financial statements F-4 2427 NORTHBROOK PARTNERS, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Northbrook Partners, Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with SEC regulations related to interim financial information and presented on an income tax basis. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 2428 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 2429 INDEPENDENT AUDITORS' REPORT General Partners Northbrook Partners, Limited: We have audited the consolidated statement of assets, liabilities and partners' deficit -- income tax basis of Northbrook Partners, Limited (a limited partnership) and its limited partnership interest as of December 31, 1997, and the related consolidated statements of revenues and expenses and changes in partners' deficit -- income tax basis and cash flows -- income tax basis for the year then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note A, these consolidated financial statements were prepared on the basis of accounting Northbrook Partners, Limited uses for Federal income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Northbrook Partners, Limited and its limited partnership interest as of December 31, 1997, and the result of their operations and their cash flows for the year then ended, on the basis of accounting described in Note A. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 19, 1998 F-7 2430 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS DECEMBER 31, 1997 ASSETS Cash and cash equivalents................................... $ 479,584 Receivables and deposits.................................... 56,664 Restricted escrows.......................................... 69,813 Other assets................................................ 207,714 Investment properties: Land...................................................... $ 185,500 Buildings and related personal property................... 2,852,343 ----------- 3,037,843 Less accumulated depreciation............................. (2,132,481) 905,362 ----------- ---------- $1,719,137 ========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 12,654 Tenant security deposits.................................. 13,710 Accrued taxes............................................. 43,009 Other liabilities......................................... 30,307 Mortgage notes payable.................................... 2,523,775 Partners' deficit........................................... (904,318) ---------- $1,719,137 ==========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-8 2431 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1997 Revenues: Rental income............................................. $ 826,494 Other income.............................................. 47,674 --------- Total revenues.................................... 874,168 --------- Expenses: Operating and maintenance................................. 405,818 General and administrative................................ 40,169 Depreciation.............................................. 53,613 Amortization.............................................. 1,157 Interest.................................................. 218,593 Property taxes............................................ 44,849 --------- Total expenses.................................... 764,199 --------- Net income.................................................. 109,969 Distributions to partners................................... (136,490) Partners' deficit at beginning of year...................... (877,797) --------- Partners' deficit at end of year............................ $(904,318) =========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-9 2432 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS -- INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1997 Cash flows from operating activities: Net income................................................ $ 109,969 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 53,613 Amortization of discounts, loan costs, and acquisition costs................................................. 18,125 Change in accounts: Receivables and deposits............................. (175) Other assets......................................... (3,497) Accounts payable..................................... (460) Tenant security deposit liabilities.................. 1,792 Accrued taxes........................................ 2,048 Other liabilities.................................... 706 --------- Net cash provided by operating activities......... 182,121 --------- Cash flows from investing activities: Property improvements and replacements.................... (50,867) Net deposits to restricted escrows........................ (2,870) --------- Net cash used in investing activities............. (53,737) --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (32,404) Distributions to partners................................. (136,490) --------- Net cash used in financing activities............. (168,894) --------- Net decrease in cash and cash equivalents................... (40,510) Cash and cash equivalents at beginning of year.............. 520,094 --------- Cash and cash equivalents at end of year.................... $ 479,584 ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 201,657 =========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-10 2433 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of Northbrook Partners, Ltd. (the "Partnership"), and its Limited Partnership interest in Northbrook Apartments, Ltd, (the "Project Partnership"). The Partnership was organized solely to invest in the Project Partnership. The Project Partnership owns and operates a 160 unit garden apartment complex located in Madison County, Mississippi. The Partnership was organized as a Mississippi limited partnership on September 21, 1979. The General Partner of the Partnership is Angeles Properties, Inc. ("API"), which acts as a general partner in other limited partnerships and is an affiliate of Angeles MAE Ventures, Inc., the general partner of the Project Partnership. Pursuant to the terms of the Agreement and Amended Certificate of Limited Partnership (the "Agreement"), the General Partner has contributed $100,000 to the Partnership for which it is entitled to a 1% interest in the operating profits, losses, credits and cash distributions of the Partnership. Capital contributions of the limited partners aggregated $1,600,000. Pursuant to the terms of the Agreement, the limited partners will receive a 99% interest in the operating profits, losses, credits and cash distributions of the Partnership. The Partnership has made capital contributions of $1,161,000 to the Project Partnership and is entitled to a 99% interest in the operating profits, losses, credits and cash distributions of the Project Partnership. MAE Ventures, Inc. is entitled to the remaining 1% of the same. Basis of Accounting The consolidated financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The consolidated financial statements represent the combination of both the Partnership and Project Partnership's tax returns. The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, (3) syndication costs are carried at their original value, instead of being amortized over the estimated life of assets, and (4) income is recorded at the partnership level based on the partnership agreement and the Internal Revenue Code instead of being recorded based on the percentage of ownership interest. On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. F-11 2434 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Depreciation Depreciation is provided in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Other Assets Other assets at December 31, 1997, include unamortized deferred loan costs of $69,015, which are amortized over the term of the related borrowing. The amortization expense is included in interest on the statement of revenues and expenses and changes in partners' deficit. Deferred loan costs are shown net of accumulated amortization. Also included in other assets at December 31, 1997, are syndication costs of $128,000 which are not amortized. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. NOTE B -- RESTRICTED ESCROWS Reserve Escrow -- In conjunction with the refinancing of the Project Partnership's property in 1993, a general reserve escrow account was established for certain capital improvements. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. At December 31, 1997, the balance in the account was $69,813. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997, consist of the following:
1997 ---------- First mortgage note payable in monthly installments of $18,981, including interest at 7.83%, due October 2003; collateralized by land and buildings...................... $2,477,356 Second mortgage note payable in interest only monthly installments of $524, at a rate of 7.83%, with principal due October 2003; collateralized by land and buildings.... 80,325 ---------- Principal balance at year end............................... 2,557,681 Less unamortized discount................................... (33,906) ---------- $2,523,775 ==========
F-12 2435 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Scheduled net principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 35,035 1999..................................................... 37,878 2000..................................................... 40,953 2001..................................................... 44,277 2002..................................................... 47,871 Thereafter............................................... 2,351,667 ---------- $2,557,681 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership and the Project Partnership have no administrative or management employees and are dependent on the General Partner for the management and administration of all partnership activities. The Project Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to the General Partner of a partnership administration fee and reimbursement of certain expenses incurred by the General Partner and its affiliates on behalf of the Partnership and the Project Partnership. Transactions with the General Partner and its affiliates are as follows:
1997 TYPE OF TRANSACTION AMOUNT - ------------------- ------- Property management fee..................................... $42,038 Reimbursement for services of affiliates.................... $22,906
In addition, the General Partner is entitled to a partnership management fee equal to 5% of the Partnership's adjusted cash from operations as distributed, pursuant to the partnership agreement. The General Partner was entitled to a $6,805 partnership management fee during 1997. For the period from January 1, 1997, to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the General Partner, who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the General Partner by virtue of the agent's obligations was not significant. F-13 2436 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 2437 INDEPENDENT AUDITORS' REPORT General Partners Northbrook Partners, Limited: We have audited the consolidated statement of assets, liabilities and partners' deficit -- income tax basis of Northbrook Partners, Limited (a limited partnership) and its limited partnership interest as of December 31, 1996, and the related consolidated statements of revenues and expenses and changes in partners' deficit -- income tax basis and cash flows -- income tax basis for the year then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note A, these consolidated financial statements were prepared on the basis of accounting Northbrook Partners, Limited uses for Federal income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Northbrook Partners, Limited and its limited partnership interest as of December 31, 1996, and the result of their operations and their cash flows for the year then ended, on the basis of accounting described in Note A. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 14, 1997 F-15 2438 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS DECEMBER 31, 1996 ASSETS Cash and cash equivalents Unrestricted.............................................. $ 520,094 Restricted -- tenant security deposits.................... 11,918 Accounts receivable......................................... 2,503 Escrow for taxes............................................ 42,068 Restricted escrows (Note B)................................. 66,943 Other assets................................................ 217,291 Investment properties (Note C): Land...................................................... $ 185,500 Buildings and related personal property................... 2,801,476 ----------- 2,986,976 Less accumulated depreciation............................. (2,078,868) 908,108 ----------- ---------- $1,768,925 ========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 13,114 Tenant security deposits.................................. 11,918 Accrued taxes............................................. 40,961 Other liabilities......................................... 29,601 Mortgage notes payable (Note C)........................... 2,551,128 Partners' deficit........................................... (877,797) ---------- $1,768,925 ==========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-16 2439 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1996 Revenues: Rental income............................................. $ 823,076 Other income.............................................. 43,728 --------- Total revenues.................................... 866,804 --------- Expenses: Operating (Note D)........................................ 240,512 General and administrative (Note D)....................... 43,006 Maintenance............................................... 159,379 Depreciation.............................................. 49,222 Amortization.............................................. 1,156 Interest.................................................. 220,664 Property taxes............................................ 40,961 --------- Total expenses.................................... 754,900 --------- Not income.................................................. 111,904 Distributions to partners................................... (167,126) Partners' deficit at beginning of year...................... (822,575) --------- Partners' deficit at end of year............................ $(877,797) =========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-17 2440 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS -- INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1996 Cash flows from operating activities: Net income................................................ $ 111,904 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 49,222 Amortization of discounts, loan costs, and acquisition costs................................................. 17,730 Change in accounts: Restricted cash...................................... (238) Accounts receivable.................................. (1,228) Escrow for taxes..................................... 261 Other assets......................................... (696) Accounts payable..................................... 6,533 Tenant security deposit liabilities.................. 238 Accrued taxes........................................ (7,417) Other liabilities.................................... 5,425 --------- Net cash provided by operating activities......... 181,734 --------- Cash flows from investing activities: Property improvements and replacements.................... (56,518) Deposits to restricted escrows............................ (7,760) Receipts from restricted escrows.......................... 20,702 --------- Net cash used in investing activities............. (43,576) --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (29,972) Distributions to partners................................. (167,126) --------- Net cash used in financing activities............. (197,098) --------- Net decrease in cash and cash equivalents................... (58,940) Cash and cash equivalents at beginning of year.............. 579,034 --------- Cash and cash equivalents at end of year.................... $ 520,094 ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 204,090 =========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-18 2441 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of Northbrook Partners, Ltd. (the "Partnership"), and its Limited Partnership interest in Northbrook Apartments, Ltd. (the "Project Partnership"). The Partnership was organized solely to invest in the Project Partnership. The Project Partnership owns and operates a 160 unit garden apartment complex located in Madison County, Mississippi. The Partnership was organized as a Mississippi limited partnership on September 21, 1979. The General Partner of the Partnership is Angeles Properties, Inc. ("API"), which acts as a general partner in other limited partnerships and is an affiliate of Angeles Investment Properties, Inc. ("AIPI"), the general partner of the Project Partnership. Pursuant to the terms of the Agreement and Amended Certificate of Limited Partnership (the "Agreement"), the General Partner has contributed $100,000 to the Partnership for which it is entitled to a 1% interest in the operating profits, losses, credits and cash distributions of the Partnership. Capital contributions of the limited partners aggregated $1,600,000. Pursuant to the terms of the Agreement, the limited partners will receive a 99% interest in the operating profits, losses, credits and cash distributions of the Partnership. The Partnership has made capital contributions of $1,161,000 to the Project Partnership and is entitled to a 99% interest in the operating profits, losses, credits and cash distributions of the Project Partnership. AIPI is entitled to the remaining 1% of the same. Basis of Accounting The consolidated financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The consolidated financial statements represent the combination of both the Partnership and Project Partnership's tax returns. The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, (3) syndication costs are carried at their original value, instead of being amortized over the estimated life of assets, and (4) income is recorded at the partnership level based on the partnership agreement and the Internal Revenue Code instead of being recorded based on the percentage of ownership interest. On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. F-19 2442 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Depreciation Depreciation is provided in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Other Assets Other assets at December 31, 1996 include deferred loan costs of $80,932, which are amortized over the term of the related borrowing. Deferred loan costs are shown net of accumulated amortization. Also included in other assets at December 31, 1996 are syndication costs of $128,000 which are not amortized. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. NOTE B -- RESTRICTED ESCROWS Capital Improvement -- In conjunction with the refinancing of the Project Partnership's property in 1993, a capital improvement escrow account was established for certain capital improvements. The capital improvements were completed in calendar year 1996 and any excess funds were returned for property operations. Reserve Escrow -- Also established with the refinancing was a general reserve escrow. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. At December 31, 1996, the balance in the account was $66,943. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 consist of the following:
1996 ---------- First mortgage note payable in monthly installments of $18,981, including interest at 7.83%, due October 2003; collateralized by land and buildings...................... $2,509,760 Second mortgage note payable in interest only monthly installments of $524, at a rate of 7.83%, with principal due October 2003; collateralized by land and buildings.... 80,325 ---------- Principal balance at year end............................... 2,590,085 Less unamortized discount................................... (38,957) ---------- $2,551,128 ==========
F-20 2443 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Scheduled net principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 32,404 1998..................................................... 35,035 1999..................................................... 37,878 2000..................................................... 40,953 2001..................................................... 44,277 Thereafter............................................... 2,399,538 ---------- $2,590,085 ==========
Subsequent to November 15, 1996, the principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership and the Project Partnership have no administrative or management employees and are dependent on the general partners for the management and administration of all partnership activities. The Project Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to general partners of a partnership administration fee and reimbursement of certain expenses incurred by general partners on behalf of the Partnership and the Project Partnership. Transactions with the General Partner and its affiliates are as follows:
1996 TYPE OF TRANSACTION AMOUNT - ------------------- ------- Property management fee..................................... $42,282 Reimbursement for services to affiliates.................... $25,074
The Partnership insures its properties under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the General Partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the General Partner by virtue of the agent's obligations is not significant. F-21 2444 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1995 AND 1994 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-22 2445 INDEPENDENT AUDITORS' REPORT General Partners Northbrook Partners, Limited: We have audited the consolidated statements of assets, liabilities and partners' deficit -- income tax basis of Northbrook Partners, Limited (a limited partnership) and its limited partnership interest as of December 31, 1995 and 1994, and the related consolidated statements of revenues and expenses and changes in partners' deficit -- income tax basis and cash flows -- income tax basis for the years then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note A, these consolidated financial statements were prepared on the basis of accounting Northbrook Partners, Limited uses for Federal income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Northbrook Partners, Limited and its limited partnership interest as of December 31, 1995 and 1994, and the result of their operations and their cash flows for the years then ended, on the basis of accounting described in Note A. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 22, 1996 F-23 2446 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS ASSETS
DECEMBER 31, -------------------------- 1995 1994 ----------- ----------- Cash and cash equivalents Unrestricted............................................ $ 579,034 $ 429,206 Restricted -- tenant security deposits.................. 11,680 13,050 Accounts receivable....................................... 1,275 953 Escrow for taxes.......................................... 42,329 40,057 Restricted escrows (Note C)............................... 79,885 89,710 Other assets.............................................. 229,667 243,438 Investment properties (Note D): Land.................................................... 185,500 185,500 Buildings and related personal property................. 2,744,958 2,667,225 ----------- ----------- 2,930,458 2,852,725 Less accumulated depreciation........................... (2,029,646) (1,985,819) ----------- ----------- 900,812 866,906 ----------- ----------- $ 1,844,682 $ 1,683,320 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable........................................ $ 6,581 $ 8,424 Tenant security deposits................................ 11,680 12,750 Accrued taxes........................................... 48,378 46,074 Other liabilities....................................... 24,176 30,631 Mortgage notes payable (Note D)......................... 2,576,442 2,599,868 Partners' deficit......................................... (822,575) (1,014,427) ----------- ----------- $ 1,844,682 $ 1,683,320 =========== ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-24 2447 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS
YEARS ENDED DECEMBER 31, -------------------------- 1995 1994 ----------- ----------- Revenues: Rental income........................................... $ 771,487 $ 770,691 Other income (Note B)................................... 188,852 41,535 ----------- ----------- Total revenues.................................. 960,339 812,226 ----------- ----------- Expenses: Operating............................................... 209,288 203,683 General and administrative (Note E)..................... 44,493 78,235 Property management fees (Note E)....................... 41,036 39,805 Maintenance............................................. 155,961 145,002 Depreciation............................................ 43,827 83,195 Interest................................................ 223,709 235,105 Property taxes.......................................... 48,378 48,091 ----------- ----------- Total expenses.................................. 766,692 833,116 ----------- ----------- Loss on disposition of property........................... -- (2,986) ----------- ----------- Net income (loss)......................................... 193,647 (23,876) Distribution to partners.................................. (1,795) -- Partners' deficit at beginning of year.................... (1,014,427) (990,551) ----------- ----------- Partners' deficit at end of year.......................... $ (822,575) $(1,014,427) =========== ===========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-25 2448 NORTHBROOK PARTNERS, LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS
YEAR ENDED DECEMBER 31, ------------------------ 1995 1994 --------- --------- Cash flows from operating activities: Net income (loss)......................................... $193,647 $(23,876) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 43,827 83,195 Amortization of discounts and loan costs............... 17,369 16,866 Loss on disposition of property........................ -- 2,986 Change in accounts: Restricted cash...................................... 1,370 (2,550) Accounts receivable.................................. (322) (952) Escrow for taxes..................................... (2,272) (423) Other assets......................................... 697 6,673 Accounts payable..................................... (1,843) (7,221) Tenant security deposit liabilities.................. (1,070) 2,250 Accrued taxes........................................ 2,304 5,211 Other liabilities.................................... (6,455) 19,315 -------- -------- Net cash provided by operating activities......... 247,252 101,474 -------- -------- Cash flows from investing activities: Property improvements and replacements.................... (77,733) (92,430) Deposits to restricted escrows............................ (4,075) (6,052) Receipts from restricted escrows.......................... 13,900 104,898 -------- -------- Net cash (used in) provided by investing activities...................................... (67,908) 6,416 -------- -------- Cash flows from financing activities: Payments on mortgage notes payable........................ (27,721) (25,640) Distributions to partners................................. (1,795) -- -------- -------- Net cash used in financing activities............. (29,516) (25,640) -------- -------- Net increase in cash........................................ 149,828 82,250 Cash and cash equivalents at beginning of year.............. 429,206 346,956 -------- -------- Cash and cash equivalents at end of year.................... $579,034 $429,206 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $206,340 $209,862 ======== ========
See Accompanying Notes to Consolidated Financial Statements -- Income Tax Basis F-26 2449 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1995 AND 1994 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The consolidated financial statements include the accounts of Northbrook Partners, Ltd. (the "Partnership"), and its Limited Partnership interest in Northbrook Apartments, Ltd. (the "Project Partnership"). The Partnership was organized solely to invest in the Project Partnership. The Project Partnership owns and operates a 160 unit garden apartment complex located in Madison County, Mississippi. The Partnership was organized as a Mississippi limited partnership on September 21, 1979. The General Partner of the Partnership is Angeles Properties, Inc. ("API"), which acts as a general partner in other limited partnerships and is an affiliate of Angeles Investment Properties, Inc. ("AIPI"), the general partner of the Project Partnership. Pursuant to the terms of the Agreement and Amended Certificate of Limited Partnership (the "Agreement"), the General Partner has contributed $100,000 to the Partnership for which it is entitled to a 1% interest in the operating profits, losses, credits and cash distributions of the Partnership. Capital contributions of the limited partners aggregated $1,600,000. Pursuant to the terms of the Agreement, the limited partners will receive a 99% interest in the operating profits, losses, credits and cash distributions of the Partnership. The Partnership has made capital contributions of $1,161,000 to the Project Partnership and is entitled to a 99% interest in the operating profits, losses, credits and cash distributions of the Project Partnership. AIPI is entitled to the remaining 1% of the same. Basis of Accounting The consolidated financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The consolidated financial statements represent the combination of both the Partnership and Project Partnership's tax returns. The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, (3) syndication costs are carried at their original value, instead of being amortized over the estimated life of assets, and (4) subsidiary income is recorded at the partnership level based on the partnership agreement and the Internal Revenue Code instead of being recorded based on the percentage of ownership interest. On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. F-27 2450 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Depreciation Depreciation is provided for in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Other Assets Other assets at December 31, 1995 and 1994 include deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Also included in other assets at December 31, 1995 and 1994 are $128,000 of syndication costs which are not amortized. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers cash and all highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. NOTE B -- LONG-TERM RECEIVABLE -- AFFILIATE In July 1993, Angeles Mortgage Investment Trust ("AMIT"), a real estate investment trust, initiated litigation against the Partnership and other partnerships which loaned money to AMIT seeking to avoid repayment of such obligations. The Partnership subsequently filed a counterclaim against AMIT seeking to enforce the obligation, the principal amount of which is $135,000 plus accrued interest from March 1993 ("AMIT Obligation"). In 1993, the Partnership wrote off this receivable as a bad debt. MAE GP Corporation ("MAE GP"), an affiliate of the general partners, owns 1,675,113 Class B Shares of AMIT. MAE GP has the option to convert these Class B Shares, in whole or in part, into Class A Shares on the basis of 1 Class A Share for every 49 Class B Shares. These Class B Shares entitle MAE GP to receive 1.2% of the distributions of net cash distributed by AMIT. These Class B Shares also entitle MAE GP to vote on the same basis as Class A Shares which allows MAE GP to vote approximately 37% of the total shares (unless and until converted to Class A Shares at which time the percentage of the vote controlled represented by the shares held by MAE GP would approximate 1.2% of the vote). Between the date of acquisition of these shares (November 24, 1992) and March 31, 1995, MAE GP has declined to vote these shares. Since that date, MAE GP voted its shares at the 1995 annual meeting in connection with the election of trustees and other matters. MAE GP has not exerted and continues to decline to exert any management control over or participate in the management of AMIT. However, MAE GP may choose to vote these shares as it deems appropriate in the future. In addition, Liquidity Assistance, LLC, ("LAC"), an affiliate of the Managing General Partner and an affiliate of Insignia Financial Group, Inc., which provides property management and partnership administration services to the Partnership, owns 63,200 Class A Shares of AMIT. These Class A Shares entitle LAC to vote approximately 1.5% of the total shares. On November 9, 1994, the Partnership executed a definitive Settlement Agreement to settle the dispute with respect to the AMIT Obligation. The actual closing of the Settlement occurred April 14, 1995. The Partnership's claim was satisfied by a cash payment to the Partnership totaling $113,041 (the "Settlement Amount") at closing. Income is recorded in 1995 equal to the cash payment and is included in other income. As part of the above described settlement, MAE GP granted to AMIT an option to acquire the Class B shares owned by it. This option can be exercised at the end of 10 years or when all loans made by AMIT to partnerships affiliated with MAE GP as of November 9, 1994 (which is the date of execution of a definitive Settlement Agreement), have been paid in full, but in no event prior to November 9, 1997. AMIT delivered to MAE GP cash in the sum of $250,000 at closing, which occurred April 14, 1995, as payment for the option. Upon exercise of the option, AMIT would remit to MAE GP an additional $94,000. F-28 2451 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Simultaneously with the execution of the option, MAE GP executed an irrevocable proxy in favor of AMIT the result of which is MAE GP will be able to vote the Class B shares on all matters except those involving transactions between AMIT and MAE GP affiliated borrowers or the election of any MAE GP affiliate as an officer or trustee of AMIT. On those matters, MAE GP granted to the AMIT trustees in their capacity as trustees of AMIT proxies with regard to the Class B shares instructing such trustees to vote said Class B shares in accordance with the vote of the majority of the Class A Shares voting to be determined without consideration of the votes of "Excess Class A Shares" as defined in section 6.13 of the Declaration of Trust of AMIT. NOTE C -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1995 and 1994 consist of the following:
1995 1994 ------- ------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements are anticipated to be completed in calendar year 1996 and any excess funds will be returned for property operations................................... $15,702 $24,977 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 64,183 64,733 ------- ------- $79,885 $89,710 ======= =======
NOTE D -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1995 and 1994 consist of the following:
1995 1994 ---------- ---------- First mortgage note payable in monthly installments of $18,981, including interest at 7.83%, due October 2003; collateralized by land and buildings...................... $2,539,732 $2,567,453 Second mortgage note payable in interest only monthly installments of $524, at a rate of 7.83%, with principal due October 2003; collateralized by land and buildings.... 80,325 80,325 ---------- ---------- Principal balance at year end............................... 2,620,057 2,647,778 Less unamortized discount................................... (43,615) (47,910) ---------- ---------- $2,576,442 $2,599,868 ========== ==========
F-29 2452 NORTHBROOK PARTNERS, LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Scheduled net principal payments of the mortgage notes during the years subsequent to December 31, 1995 are as follows: 1996..................................................... $ 29,971 1997..................................................... 32,404 1998..................................................... 35,035 1999..................................................... 37,878 2000..................................................... 40,953 Thereafter............................................... 2,443,816 ---------- $2,620,057 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1996. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE E -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership and the Project Partnership have no administrative or management employees and are dependent on the general partners for the management and administration of all partnership activities. The Project Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to general partners of a partnership administration fee and reimbursement of certain expenses incurred by general partners on behalf of the Partnership and the Project Partnership. Transactions with the General Partner and its affiliates are as follows:
1995 1994 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Property management fee.................................. $41,036 $39,805 Reimbursement for services to affiliates................. $25,318 $23,357
The Partnership insures its properties under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the General Partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the General Partner by virtue of the agent's obligations is not significant. F-30 2453 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 2454 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 2455 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 September , 1998 A-3 2456 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF OLDE MILL 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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 apartment properties to holding an interest in our large portfolio of properties. - 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 2457 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 Olde Mill 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 2458
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-75 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 2459 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 Olde Mill 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 2460 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 2461 - 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 $1,545.30 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 distributions of $ 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 small number of apartment 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 2462 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2463 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 100% of 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? 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: 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 2464 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 2465 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. 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. 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 5 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. 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 S-7 2466 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. 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 Code. The particular tax consequences to you of the exchange 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 small number of apartment 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. S-8 2467 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 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 S-9 2468 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 2469 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, 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. 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 S-11 2470 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 16.25% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 2471 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. 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." S-13 2472 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 2473 - 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 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 2474 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 2475 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 2476 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. [leave blank] 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 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 generated in that capacity. The property manager received management fees of $254,423 in 1996, $313,723 in 1997 and $136,838 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 Your Partnership and its Property. Olde Mill Investors Limited Partnership is a Delaware limited partnership which was formed on December 30, 1985 for the purpose of owning and operating a small number of apartment properties located in Beltsville, Maryland, known as "Lighthouse at Twin Lakes Apartments I," "Lighthouse at Twin Lakes Apartments II" and "Lighthouse at Twin Lakes Apartments III," respectively. In 1986, it completed a private placement of units that raised net proceeds of approximately $20,577,920. Lighthouse at Twin Lakes Apartments I consists of 480 apartment units, Lighthouse at Twin Lakes Apartment II consist of 58 apartment units and Lighthouse at Twin Lakes Apartments III consists of 107 apartment units. Your partnership has no employees. S-18 2477 Property Management. Since November 199 , your partnership's property has been managed by an entity which is now our affiliate. 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. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2030, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $18,259,405, payable to LaSalle and Lehman, which bears interest at a rate of 8.75%. The mortgage debt is due in September 2006. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2478 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 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 2479
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 2480 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 2481
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 2482 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 2483 SUMMARY FINANCIAL INFORMATION OF OLDE MILL INVESTORS LIMITED PARTNERSHIP The summary financial information of Olde Mill Investors Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Olde Mill 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 of Your Partnership" included herein. See "Index to Financial Statements." OLDE MILL INVESTORS LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... 2,736,436 0 5,452,047 5,247,890 5,241,388 5,116,845 5,039,927 Net Income/(Loss)............ (274,776) 0 (475,442) (655,035) (508,265) (740,374) (784,066) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... 16,222,870 0 16,716,194 16,838,382 17,294,527 18,181,584 19,080,295 Total Assets................. 18,389,860 0 18,792,550 19,629,713 19,248,744 20,232,323 21,360,900 Mortgage Notes Payable, including Accrued Interest................... 18,393,247 0 18,465,740 18,602,456 17,292,484 17,339,411 17,513,531 Partners' Capital/(Deficit).......... (348,947) 0 (74,171) 741,237 1,624,789 2,353,165 3,313,628
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 YOUR PARTNERSHIP ----------------------- ----------------------- SIX YEAR SIX YEAR MONTHS ENDED MONTHS ENDED ENDED DECEMBER ENDED DECEMBER JUNE 30, 31, JUNE 30, 31, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Cash distributions per unit outstanding..................... $ 1.125 $ 1.85 $ 0.00 $ 1,515.30
S-25 2484 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. 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 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 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. S-26 2485 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 Code. 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 therefore 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 apartment 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 S-27 2486 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, 1998 were $ 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 an 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 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. 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. S-28 2487 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently own a 16.25% limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 2488 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. S-30 2489 - 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 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 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 2490 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 2491 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 2492 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. 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. S-34 2493 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." 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. 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. S-35 2494 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, (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 considerations 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 9:00 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 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, Denver, Colorado time. S-36 2495 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 2496 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. 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 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 S-38 2497 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 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 S-39 2498 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 2499 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. 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. 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-41 2500 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-42 2501 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 payment. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income 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 OP Units and any such Parity Units S-43 2502 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-44 2503 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-45 2504 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-46 2505 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-47 2506 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-48 2507 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-49 2508 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 2509 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-51 2510 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 2511 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 2512 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 2513 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 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, a third party expert, that the cash 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 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, 1998 were $ 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-55 2514 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-56 2515 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 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. S-57 2516 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 2517 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 September 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 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 property was 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, S-59 2518 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 2519 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing "Lighthouse at Twin Lakes Apartments I," Partnership owns interests (either directly or through "Lighthouse at Twin Lakes Apartments II" and subsidiaries) in numerous multifamily apartment "Lighthouse at Twin Lakes Apartments III," properties. The AIMCO Operating Partnership conducts respectively. 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 (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 2030. 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 real The purpose of the AIMCO Operating Partnership is to estate by acquiring, holding, disposing of, in conduct any business that may be lawfully conducted by appropriate circumstances, and otherwise dealing with a limited partnership organized pursuant to the the interests of your partnership in Calverton Delaware Revised Uniform Limited Partnership Act (as Associates Limited Partnership, Calverton Construc- amended from time to time, or any successor to such tion Co. Limited Partnership and Walden Joint Venture statute) (the "Delaware Limited Partnership Act"), Limited Partnership, all Maryland partnerships. Subject provided that such business is to be conducted in a to restrictions contained in your partnership's manner that permits AIMCO to be qualified as a REIT, agreement of limited partnership, your partnership may unless AIMCO ceases to qualify as a REIT. The AIMCO perform all act necessary, advisable or convenient to Operating Partnership is authorized to perform any and the business of your partnership including borrowing all acts for the furtherance of the purposes and money 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-61 2520 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 220 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 In addition, the general partner may sell additional Unitholder. See "Description of OP Units -- Management limited partnership interests on such terms and by the AIMCO GP" in the accompanying Prospectus. conditions and the additional limited partners will Subject to Delaware law, any additional partnership have such rights and obligations as the general partner interests may be issued in one or more classes, or one determines; provided that such additional limited or more series of any of such classes, with such partnership interests may not decrease pro rata the designations, preferences and relative, partici- interests of the original limited partners by more than pating, optional or other special rights, powers and 25% and such limited partners may purchase the duties as shall be determined by the general partner, additional limited partnership interests pro rata in in its sole and absolute discretion without the accordance with the percentage of interests they own approval of any OP Unitholder, and set forth in a for a period of 45 days after notice of such sale is written document thereafter attached to and made an given to the original limited partners. exhibit to the AIMCO Operating Partnership Agreement. Your partnership may not issue senior securities, offer securities in exchange for property or repurchase or otherwise reacquire the units.
Restrictions Upon Related Party Transactions The general partner may cause your partnership to The AIMCO Operating Partnership may lend or contribute transact business with itself or any affiliates for funds or other assets to its subsidiaries or other goods or services reasonably required in the conduct of persons in which it has an equity investment, and such your partnership's business, provided that such persons may borrow funds from the AIMCO Operating transactions, except those set forth in your Partnership, on terms and conditions established in the partnership's agreement of limited partnership, must be sole and absolute discretion of the general partner. To effected on terms competitive with those which may be the extent consistent with the business purpose of the obtained from unaffiliated persons and disclosed to the AIMCO Operating Partnership and the permitted limited partners. Although general partner may lend activities of the general partner, the AIMCO Operating money to your partnership in furtherance of your Partnership may transfer assets to joint ventures, partnership's business at to be paid back from first limited liability companies, partnerships, available Cash Flow or Capital Proceeds (each as corporations, business trusts or other business defined in your partnership's agreement of limited entities in which it is or thereby becomes a partnership) and at an interest rate equal to the participant upon such terms and subject to such lesser of (i) the general partner's actual borrowing conditions consistent with the AIMCO Operating Part- rate or (ii) rates commonly charged by unrelated nership Agreement and applicable law as the general lenders in the same market in which the loan is made, partner, in its sole and absolute discretion, believes your partnership may not lend money to the general to be advisable. Except as expressly permitted by the partner or its 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, by assuming obligations or otherwise, restrictions on borrowings, and the general partner has and issue evidences of indebtedness in furtherance of full power and authority to borrow money on behalf of any or all of the purposes of your partnership and the AIMCO Operating Partnership. The AIMCO Operating secure the same by mortgage, pledge or other lien on Partnership has credit agreements that restrict, among any other assets of your partnership. other things, its ability to incur indebtedness. See "Risk Factors -- Risks of Significant Indebtedness" in the accompanying Prospectus.
S-62 2521 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 or its duly authorized with a statement of the purpose of such demand and at representative to inspect and copy the names and such OP Unitholder's own expense, to obtain a current current addresses of and interests owned by the list of the name and last known business, residence or partners during reasonable hours upon three days notice mailing address of the general partner and each other to the general partners at the office of your OP Unitholder. partnership. The limited partners are also entitled to obtain a list of the names and address of all limited partners upon written request to the general partner and the payment of all reasonable expenses of the general partner in furnishing such list.
Management Control Subject to the limitations contained in your All management powers over the business and affairs of partnership's agreement of limited partnership, the the AIMCO Operating Partnership are vested in AIMCO-GP, general partner of your partnership has full, exclusive Inc., which is the general partner. No OP Unitholder and complete authority, discretion, obligation and has any right to participate in or exercise control or responsibility with respect to the partnership's management power over the business and affairs of the business. The general partner oversees the day-to-day AIMCO Operating Partnership. The OP Unitholders have affairs of your partnership and makes all decisions and the right to vote on certain matters described under takes all action with respect thereto. The general "Comparison of Ownership of Your Units and AIMCO OP partner may not take any action which violates Units -- Voting Rights" below. The general partner may applicable law, requires the consent of the limited not be removed by the OP Unitholders with or without partners under applicable law, changes your partnership cause. to a general partnership, changes your partnership to an association taxable as a corporation or allow the In addition to the powers granted a general partner of limited partners to take part in the control of your a limited partnership under applicable law or that are partnership. No limited partner may take part in the granted to the general partner under any other management or control of the business of your provision of the AIMCO Operating Partnership Agreement, partnership or transact any business in the name of the general partner, subject to the other provisions of your partnership. No limited partner has the authority the AIMCO Operating Partnership Agreement, has full or power to bind your partnership or to sign any power and authority to do all things deemed necessary agreement or document in the name of your partnership. 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 will not incur any liability, partner is not liable to the AIMCO Operating responsibility or accountability for damages or other- Partnership for losses sustained, liabilities incurred wise to your partnership or any limited partner arising or benefits not derived as a result of errors in out of any acts performed or any omission by any of judgment or mistakes of fact or law of any act or them if they believed in good faith that such act or omission if the general partner acted in good faith. omission was in the best interests of your partnership The AIMCO Operating Partnership Agreement provides for and such course of conduct did not constitute indemnification of AIMCO, or any director or officer of negligence or misconduct on the part of the such AIMCO (in its capacity as the previous general partner person. In addition, your partnership will indemnify of the AIMCO Operating Partnership), the general and save harmless the general partner and its partner, any officer or director of general partner or affiliates against any loss, damage, liability, cost or the AIMCO Operating Partnership and such other persons expenses (including reasonable attorneys' fees) as the general partner may designate from and against incurred by them in connection with your partnership all losses, claims, damages, liabilities, joint or provided that such loss, damage, liability, cost or several, expenses (including legal fees), fines, expense was not the result of negligence or misconduct settlements and other amounts incurred in connection on the part of such persons. Such indemnity will be with any actions relating to the operations of the paid from, and only to the extent of, partnership AIMCO Operating Partnership, as set forth in the AIMCO assets. However, the general partner will not be Operating Partnership indemnified from
S-63 2522 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP any loss, damage or cost resulting form the violation Agreement. The Delaware Limited Partnership Act of any Federal or state securities law in connection provides that subject to the standards and with the sale of units unless (i) there has been a restrictions, if any, set forth in its partnership successful adjudication on the merits of each count agreement, a limited partnership may, and shall have involving such securities law violation, (ii) such the power to, indemnify and hold harmless any partner claims have been dismissed with prejudice on the merits or other person from and against any and all claims and by a court of competent jurisdiction or (iii) a court demands whatsoever. It is the position of the of competent jurisdiction approves a settlement of such Securities and Exchange Commission that indemnification claim. In such claim for indemnification for Federal or of directors and officers for liabilities arising under state securities law violation, the party seeking the Securities Act is against public policy and is 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 of 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 the vote of the limited partners holding affairs of the AIMCO Operating Partnership. The general 51% of the then 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 or is elected. The or without cause. Under the AIMCO Operating Partnership general partner may admit any person as an additional Agreement, the general partner may, in its sole or substitute general partner if the limited partners discretion, prevent a transferee of an OP Unit from owning more than 50% of the then outstanding units becoming a substituted limited partner pursuant to the consent and such other conditions as are set forth in AIMCO Operating Partnership Agreement. The general your partnership's agreement of limited partnership are partner may exercise this right of approval to deter, fulfilled. A limited partner may not transfer his delay or hamper attempts by persons to acquire a interests without the consent of the general partner. 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 upon approval by the limited partners owning in the AIMCO Operating Partnership Agreement, whereby more than 50% of the units and the general partner. the general partner may, without the consent of the OP Amendments may be proposed by a general partner or Unitholders, amend the AIMCO Operating Partnership limited partners owning 10% or more the units. The Agreement, amendments to the AIMCO Operating consent of all limited partners is required to alter Partnership Agreement require the consent of the the purposes of your partnership or to amend the holders of a majority of the outstanding Common OP provisions regarding amendments of your partnership's Units, excluding AIMCO and certain other limited agreement of limited partnership. Any amendment which exclusions (a "Majority in Interest"). Amendments to increases the liability of or decreases the rights and the AIMCO Operating Partnership Agreement may be interest of a partner must be approved by the affected proposed by the general partner or by holders of a partner. No amendment may be adopted which will Majority in Interest. Following such proposal, the directly or indirectly affect or jeopardize the status general partner will submit any proposed amendment to of your partnership as a partnership for tax purposes. the OP Unitholders. The general partner will seek the The general partner may amend your partnership's written consent of the OP Unitholders on the proposed agreement of limited partnership without the consent of amendment or will call a meeting to vote thereon. See the limited partners to comply with the applicable "Description of OP Units -- Amendment of the AIMCO laws, correct any ambiguities, and otherwise implement Operating Partnership Agreement" in the accompanying your partnership's agreement of limited partnership, Prospectus. provided that such amendments do not adversely affect the rights of the limited partners.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fees for its services as general partner capacity as general partner of the AIMCO Operating but may receive reimbursement for expenses generated in Partnership. In addition, the AIMCO Operating Part- its capacity as general partner. Moreover, the general nership is responsible for all expenses incurred partner or certain affiliates may be entitled to relating to the AIMCO Operating Partnership's ownership compensation for additional services rendered. of its assets and the operation of the AIMCO Operating Partnership and reimburses
S-64 2523 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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, the liability of each limited partner is negligence, no OP Unitholder has personal liability for limited to its capital contribution as and when it is the AIMCO Operating Partnership's debts and payable under your partnership's agreement of limited obligations, and liability of the OP Unitholders for partnership. No limited partner will have any other the AIMCO Operating Partnership's debts and obligations liability to contribute money to your partnership, nor is generally limited to the amount of their invest- will any limited partner be personally liable for any ment in the AIMCO Operating Partnership. However, the obligations of your partnership, except as expressly limitations on the liability of limited partners for provided otherwise in your partnership's agreement of the obligations of a limited partnership have not been limited partnership or applicable law. No limited clearly established in some states. If it were partner will be obligated to make loans to your determined that the AIMCO Operating Partnership had partnership. 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 manage and partnership agreement, Delaware law generally requires control the affairs of your partnership to the best of a general partner of a Delaware limited partnership to its ability and use its best efforts to carry out the adhere to fiduciary duty standards under which it owes business of your partnership. Except as expressly its limited partners the highest duties of good faith, provided in your partnership's agreement of limited fairness and loyalty and which generally prohibit such partnership, any of the partners and their affiliates general partner from taking any action or engaging in may engage in or possess an interest in other business any transaction as to which it has a conflict of ventures of every nature and description, including interest. The AIMCO Operating Partnership Agreement without limitation, real estate business ventures, expressly authorizes the general partner to enter into, whether or not such other enterprises are in on behalf of the AIMCO Operating Partnership, a right competition with any of the activities of your of first opportunity arrangement and other conflict partnership and neither your partnership nor the other avoidance agreements with various affiliates of the partners will have any rights by virtue of your AIMCO Operating Partnership and the general partner, on partnership's agreement of limited partnership in and such terms as the general partner, in its sole and to such independent ventures or to the income or absolute discretion, believes are advisable. The AIMCO profits derived therefrom. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 2524 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 units the holders of the Preferred OP respect to certain limited matters and the consent of the general Units will have the same voting such as certain amendments and partner, your partnership may sell, rights as holders of the Common OP termination of the AIMCO Operating exchange or otherwise dispose or Units. See "Description of OP Partnership Agreement and pledge Units"
S-66 2525 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS your partnership's interest in in the accompanying Prospectus. So certain transactions such as the Calverton Associates Limited long as any Preferred OP Units are institution of bankruptcy Partnership, Calverton Construction outstanding, in addition to any proceedings, an assignment for the Co. Limited Partnership or other vote or consent of partners benefit of creditors and certain Calverton Associates Limited required by law or by the AIMCO transfers by the general partner of Partnership, Calverton Construction Operating Partnership Agreement, its interest in the AIMCO Operating Co. Limited Partnership and Walden the affirmative vote or consent of Partnership or the admission of a Joint Venture Limited Partnership holders of at least 50% of the successor general partner. Walden Joint Venture Limited outstanding Preferred OP Units will Partnership, cause the sale of your be necessary for effecting any Under the AIMCO Operating Partner- partnership's property, cause your amendment of any of the provisions ship Agreement, the general partner partnership to engage in any of the Partnership Unit Desig- has the power to effect the business other than that specified nation of the Preferred OP Units acquisition, sale, transfer, in your partnership's agreement of that materially and adversely exchange or other disposition of limited partnership, admit a affects the rights or preferences any assets of the AIMCO Operating successor general partner, approve of the holders of the Preferred OP Partnership (including, but not amendments to your partnership's Units. The creation or issuance of limited to, the exercise or grant agreement of limited partnership, any class or series of partnership of any conversion, option, subject to certain exceptions and units, including, without privilege or subscription right or pay any fees or remuneration to the limitation, any partnership units any other right available in general partner and its affiliates, that may have rights senior or connection with any assets at any except as permitted by your superior to the Preferred OP Units, time held by the AIMCO Operating partnership's agreement of limited shall not be deemed to materially Partnership) or the merger, partnership. The consent of a adversely affect the rights or consolidation, reorganization or limited partner will be deemed to preferences of the holders of other combination of the AIMCO be granted if it does not refuse to Preferred OP Units. With respect to Operating Partnership with or into consent in writing within thirty the exercise of the above de- another entity, all without the days after it received notice scribed voting rights, each consent of the OP Unitholders. requesting its consent. The holders Preferred OP Units shall have one of a majority in interest of the (1) vote per Preferred OP Unit. The general partner may cause the outstanding units may also remove dissolution of the AIMCO Operating the general partner and terminate Partnership by an "event of your partnership before the withdrawal," as defined in the expiration of its term. Delaware Limited Partnership Act (including, without limitation, A general partner may cause the bankruptcy), unless, within 90 days dissolution of your partnership by after the withdrawal, holders of a retiring when there is no remaining "majority in interest," as defined general partner. In such event, in the Delaware Limited Partnership your partnership may continue if, Act, agree in writing, in their within ninety days after such sole and absolute discretion, to retirement, the majority in continue the business of the AIMCO interest of the limited partners Operating Partnership and to the elect to continue your partnership appointment of a successor general and appoint a successor general partner. The general partner may partner. 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 Flow (as $ per Preferred OP Unit; tribute quarterly all, or such defined in your partnership's provided, however, that at any time portion as the general partner may agreement of limited partnership) and from time to time on or after in its sole and absolute discretion are distributed from time to time the fifth anniversary of the issue determine, of Available Cash (as in the discretion of the general date of the Preferred OP Units, the defined in the AIMCO Operating partner but not less than annually. 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 OP Units on the record date the disposition of
S-67 2526 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS your partnership's assets. Your U.S. Treasury notes with a maturity established by the general partner partnership has made distributions of five years, and (ii) the annual with respect to such quarter, in in the past and is projected to dividend rate on the most recently accordance with their respective made distributions in 1998. 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 to any person who is not a Preferred OP Units and the OP Units. The AIMCO Operating Part- minor, except in limited Preferred OP Units are not listed nership Agreement restricts the circumstances, or an incompetent on any securities exchange. The transferability of the OP Units. and such person will become a Preferred OP Units are subject to Until the expiration of one year substitute limited partner if: (1) restrictions on transfer as set from the date on which an OP such transfer is of at least 1/2 forth in the AIMCO Operating Unitholder acquired OP Units, unit, except in limited circum- Partnership Agreement. subject to certain exceptions, such stances, (2) a transfer application OP Unitholder may not transfer all has been completed by the assignor Pursuant to the AIMCO Operating or any portion of its OP Units to and assignee, (3) the assignee Partnership Agreement, until the any transferee without the consent executes, adopts and acknowledges expiration of one year from the of the general partner, which your partnership's agreement of date on which a holder of Preferred consent may be withheld in its sole limited partnership, (4) the OP Units acquired Preferred OP and absolute discretion. After the approval of the general partner Units, subject to certain expiration of one year, such OP which may be withheld in the sole exceptions, such holder of Unitholder has the right to and absolute discretion of the Preferred OP Units may not transfer transfer all or any portion of its general partner has been granted, all or any portion of its Pre- OP Units to any person, subject to (5) the transfer, when added to all ferred OP Units to any transferee the satisfaction of certain other assignments within the without the consent of the general conditions specified in the AIMCO preceding twelve months ending on partner, which consent may be the date of the withheld in its sole and
S-68 2527 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS proposed assignment would not absolute discretion. After the Operating Partnership Agreement, result in the termination of your expiration of one year, such including the general partner's partnership under the tax code, (5) holders of Preferred OP Units has right of first refusal. See the assignor or the assignee pays the right to transfer all or any "Description of OP Units -- all costs and fees associated with portion of its Preferred OP Units Transfers and Withdrawals" in the the transaction, (6) the assignee to any person, subject to the accompanying Prospectus. meets the requirements for satisfaction of certain conditions investment in your partnership, (7) specified in the AIMCO Operating After the first anniversary of your partnership's agreement of Partnership Agreement, including becoming a holder of Common OP limited partnership is amended to the general partner's right of Units, an OP Unitholder has the evidence the admission of the first refusal. right, subject to the terms and assignee and (8) the assignor and conditions of the AIMCO Operating assignee have complied with such After a one-year holding period, a Partnership Agreement, to require other conditions as set forth in holder may redeem Preferred OP the AIMCO Operating Partnership to your partnership's agreement of Units and receive in exchange redeem all or a portion of the limited partnership. therefor, at the AIMCO Operating Common OP Units held by such party There are no redemption rights Partnership's option, (i) subject in exchange for a cash amount based associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 2528 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 from your partnership but may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $254,423 in 1996, $313,723 in 1997 and $136,838 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's 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'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 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-70 2529 YOUR PARTNERSHIP GENERAL Olde Mill Investors Limited Partnership is a Delaware limited partnership which raised net proceeds of approximately $20,577,920 in 1986 through a private offering. The promoter for the private offering of your partnership was Winthrop Securities Co., Inc.. Insignia acquired your partnership in November 1997. AIMCO acquired Insignia in October, 1998. There are currently a total of 223 limited partners of your partnership and a total of 220 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the small number of apartment properties described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on December 30, 1985 for the purpose of owning and operating a small number of apartment properties located in Beltsville, Maryland, known as "Lighthouse at Twin Lakes Apartments I," "Lighthouse at Twin Lakes Apartments II" and "Lighthouse at Twin Lakes Apartments III," respectively. There are 480 apartment units in "Lighthouse at Twin Lakes Apartments I" consisting of 36 studio apartments, 192 one-bedroom apartments and 25 two-bedroom apartments. The total rentable square footage is 410,742 square feet and the average annual rent per apartment unit is $7,613. "Lighthouse at Twin Lakes Apartments II" has 58 apartment units, all of which are one-bedroom apartments. The total rentable square footage is 105,707 square feet. The average annual rent per apartment unit is $7,932. In "Lighthouse at Twin Lakes Apartments III," there are 107 apartment units, all of which are studio apartments. The total rentable square footage is 50,867 square feet and the average annual rent per apartment unit is $6,087. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1997, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $254,423, $313,723 and $136,838, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is not limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2030 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is not is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. S-71 2530 An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, there was current mortgage note outstanding on "Lighthouse at Twin Lakes Apartments" of $18,259,405 payable to LaSalle and Lehman which bears interest at a rate of 8.75% and is due September 2006. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 2531 BALANCE SHEET DATA Below is selected financial information for Olde Mill Investors Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
OLDE MILL INVESTORS LIMITED PARTNERSHIP ---------------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, --------------------------- ---------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ ----------- ----------- Cash and Cash Equivalents........... 890,101 Not 699,473 1,442,241 1,201,714 1,236,099 1,369,043 Land & Building......... 30,233,316 Available 30,054,554 28,832,571 27,984,966 27,681,500 27,458,173 Accumulated Depreciation.......... (14,010,446) (13,338,360) (11,994,189) (10,690,439) (9,499,916) (8,377,878) Other Assets............ 1,276,889 1,376,883 1,349,090 752,503 814,640 911,562 ------------ ------------ ------------ ------------ ------------ ----------- ----------- Total Assets... 18,389,860 18,792,550 19,629,713 19,248,744 20,232,323 21,360,900 ============ ============ ============ ============ ============ =========== =========== Mortgage & Accrued Interest.............. 18,393,247 18,465,740 18,602,456 17,292,484 17,339,411 17,513,531 Other Liabilities....... 345,560 400,981 286,020 331,471 539,747 533,741 ------------ ------------ ------------ ------------ ------------ ----------- ----------- Total Liabilities... 18,738,807 18,866,721 18,888,476 17,623,955 17,879,158 18,047,272 ------------ ------------ ------------ ------------ ------------ ----------- ----------- Partners Capital (Deficit)............. (348,947) (74,171) 741,237 1,624,789 2,353,165 3,313,628 ============ ============ ============ ============ ============ =========== ===========
STATEMENT OF OPERATIONS DATA
OLDE MILL INVESTORS LIMITED PARTNERSHIP ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- Rental Revenue..................... 2,619,212 5,209,762 5,035,502 5,023,379 4,948,752 4,873,325 Other Income....................... 117,224 242,285 212,388 218,009 168,093 166,602 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. 2,736,436 0 5,452,047 5,247,890 5,241,388 5,116,845 5,039,927 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 1,183,637 0 2,076,901 2,165,969 2,038,635 2,285,286 2,194,665 General & Administrative........... 140,044 488,803 302,770 321,386 233,308 298,764 Depreciation....................... 672,086 1,344,171 1,303,750 1,190,523 1,122,038 1,112,238 Interest Expense................... 836,364 1,609,757 1,721,286 1,762,700 1,766,189 1,783,229 Property Taxes..................... 179,081 407,857 409,150 436,409 450,398 435,097 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ 3,011,212 0 5,927,489 5,902,925 5,749,653 5,857,219 5,823,993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income......................... (274,776) 0 (475,442) (655,035) (508,265) (740,374) (784,066) ========== ========== ========== ========== ========== ========== ==========
S-73 2532 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Due to this partnership being a recent acquisition, very little discussion is available for variances. Results of Operations Six Months Ended June 30, 1998 Due to this partnership being a recent acquisition, no data was available for the six months ended June 30, 1997. Net Income Your partnership recognized a net loss of $274,776 for the six months ended June 30, 1998. Revenues Rental and other property revenues from the partnership's property totaled $2,736,436 for the six months ended June 30, 1998. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,183,637 for the six months ended June 30, 1998. Management expenses totaled $136,838 for the six months ended June 30, 1998. General and Administrative Expenses General and administrative expenses totaled $140,044 for the six months ended June 30, 1998. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $836,364 for the six months ended June 30, 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $475,442 for the year ended December 31, 1997, compared to a loss of $655,035 for the year ended December 31, 1996, an increase in net income of $179,593, or 27.42%. Revenues Rental and other property revenues from the partnership's property totaled $5,452,047 for the year ended December 31, 1997, compared to $5,247,890 for the year ended December 31, 1996, an increase of $204,157, or 3.89%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $2,076,901 for the year ended December 31, 1997, compared to $2,165,969 for the year ended December 31, 1996, a decrease of $89,068 or 4.11%. Management expenses totaled $313,723 for the year ended S-74 2533 December 31, 1997, compared to $254,423 for the year ended December 31, 1996, an increase of $59,300, or 23.31%. The increase resulted from a change in property management agents in October of 1997. General and Administrative Expenses General and administrative expenses totaled $488,803 for the year ended December 31, 1997 compared to $302,770 for the year ended December 31, 1996, an increase of $186,033 or 61.44%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,609,757 for the year ended December 31, 1997, compared to $1,721,286 for the year ended December 31, 1996, a decrease of $111,529, or 6.48%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $655,035 for the year ended December 31, 1996, compared to a net loss of $508,265 for the year ended December 31, 1995, a decrease in net income of $146,770, or 28.88%. Revenues Rental and other property revenues from the partnership's property totaled $5,247,890 for the year ended December 31, 1996, compared to $5,241,388 for the year ended December 31, 1995, an increase of $6,502, or .12%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $2,165,969 for the year ended December 31, 1996, compared to $2,038,635 for the year ended December 31, 1995, an increase of $127,334 or 6.25%. Management expenses totaled $254,423 for the year ended December 31, 1996, compared to $251,778 for the year ended December 31, 1995, an increase of $2,645, or 1.05%. General and Administrative Expenses General and administrative expenses totaled $302,770 for the year ended December 31, 1996 compared to $321,386 for the year ended December 31, 1995, a decrease of $18,616 or 5.79%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,721,286 for the year ended December 31, 1996, compared to $1,762,700 for the year ended December 31, 1995, a decrease of $41,414, or 2.35%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $890,101 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 will not incur any liability, responsibility or accountability for damages or otherwise to your partnership or any limited partner arising out of any acts performed or any omission by any of them if they S-75 2534 believed in good faith that such act or omission was in the best interests of your partnership and such course of conduct did not constitute negligence or misconduct on the part of the 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 owned by AIMCO. See "Conflicts of Interest". Your partnership will indemnify and save harmless the general partner and its affiliates against any loss, damage, liability, cost or expenses (including reasonable attorneys' fees) incurred by them in connection with your partnership provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct on the part of such persons. Such indemnity will be paid from, and only to the extent of, partnership assets. However, the general partner will not be indemnified from any loss, damage or cost resulting form the violation of any Federal or state securities law in connection with the sale of units unless (i) there has been a successful adjudication on the merits of each count involving such securities law violation, (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or (iii) a court of competent jurisdiction approves a settlement of such claim. In such claim for indemnification for Federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect of 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 that is prohibited by your partnership's agreement of limited partnership. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $1,000.00 1995........................................................ 1,000.00 1996........................................................ 1,038.71 1997........................................................ 1,545.30 1998 (through June 30)...................................... 0.00
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale S-76 2535 transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP AIMCO currently owns a 16.25% limited partnership interest in your partnership. Except as described above, Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994............................................ 50,000 1995............................................ 50,000 1996............................................ 50,000 1997............................................ 52,969 1998 (through June 30)..........................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... 251,778 1996........................................... 254,423 1997........................................... 313,723 1998 (through June 30)......................... 136,838
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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-77 2536 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 Olde Mill Investors Limited Partnership at December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by Reznick Fedder & Silverman, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-78 2537 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statement of Operations for the six months ended June 30, 1998 (unaudited)................................. F-3 Condensed Statement of Cash Flows for the six months ended June 30, 1998 (unaudited)................................. F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Consolidated Balance Sheets as of December 31, 1997 and 1996...................................................... F-8 Consolidated Statements of Operations for the years ended December 31, 1997 and 1996................................ F-9 Consolidated Statements of Changes in Partners' Equity (Deficit) for the years ended December 31, 1997 and 1996...................................................... F-10 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996................................ F-11 Notes to Consolidated Financial Statements.................. F-12 Independent Auditors' Report................................ F-17 Consolidated Balance Sheets as of December 31, 1996 and 1995...................................................... F-18 Consolidated Statements of Operations for the years ended December 31, 1996 and 1995................................ F-19 Consolidated Statements of Changes in Partners' Equity (Deficit) for the years ended December 31, 1996 and 1995...................................................... F-20 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995................................ F-21 Notes to Consolidated Financial Statements.................. F-22
F-1 2538 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 890,101 Receivables and Deposits.................................... 150,490 Other Assets................................................ 1,126,399 Investment Property: Land...................................................... 2,933,760 Building and related personal property.................... 27,299,556 ------------ 30,233,316 Less: Accumulated depreciation............................ (14,010,446) 16,222,870 ------------ ----------- Total Assets...................................... $18,389,860 =========== LIABILITIES AND PARTNERS' CAPITAL Other Accrued Liabilities................................... $ 345,560 Notes Payable............................................... 18,393,247 Partners' Capital........................................... (348,947) ----------- Total Liabilities and Partners' Capital........... $18,389,860 ===========
F-2 2539 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Revenues: Rental Income............................................. $2,619,212 Other Income.............................................. 117,224 ---------- Total Revenues.................................... 2,736,436 Expenses: Operating Expenses........................................ 1,183,637 General and Administrative Expenses....................... 140,044 Depreciation Expense...................................... 672,086 Interest Expense.......................................... 836,364 Property Tax Expense...................................... 179,081 ---------- Total Expenses.................................... 3,011,212 Net Income (Loss)................................. $ (274,776) ==========
F-3 2540 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Operating Activities: Net Income (loss)......................................... $(274,776) Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 672,086 Changes in accounts: Receivables and deposits and other assets............ 99,994 Accounts Payable and accrued expenses................ (55,421) --------- Net cash provided by (used in) operating activities........................................ 441,883 --------- Investing Activities: Property improvements and replacements.................... (178,762) --------- Net cash provided by (used in) investing activities........................................ (178,762) --------- Financing Activities: Payments on mortgage...................................... (72,493) --------- Net cash provided by (used in) financing activities........................................ (72,493) --------- Net increase (decrease) in cash and cash equivalents....................................... 190,628 Cash and cash equivalents at beginning of year.............. 699,473 --------- Cash and cash equivalents at end of period.................. $ 890,101 =========
F-4 2541 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Olde Mill Investors Limited Partnership and Subsidiaries as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 2542 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 1997 AND 1996 F-6 2543 INDEPENDENT AUDITORS' REPORT To the Partners Olde Mill Investors Limited Partnership and Subsidiaries We have audited the accompanying consolidated balance sheets of Olde Mill Investors Limited Partnership and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in partners' equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Olde Mill Investors Limited Partnership and Subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDERS & SILVERMAN Bethesda, Maryland February 11, 1998 F-7 2544 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, ASSETS
1997 1996 ----------- ----------- INVESTMENT IN REAL ESTATE Land...................................................... $ 2,933,760 $ 2,933,760 Buildings, improvements and personal property............. 27,120,794 25,898,811 ----------- ----------- 30,054,554 28,832,571 Less accumulated depreciation.......................... 13,338,360 11,994,189 ----------- ----------- 16,716,194 16,838,382 OTHER ASSETS Cash and cash equivalents................................. 612,177 1,319,805 Tenant accounts receivable................................ 98,324 49,546 Other receivables......................................... 114,339 76,905 Tenant security deposits -- funded........................ 87,296 122,436 Prepaid expenses and other assets......................... 171,183 253,572 Mortgage escrow deposits and reserves..................... 382,465 265,904 Deferred costs, net of accumulated amortization of $101,810 in 1997 and $30,572 in 1996................... 610,572 703,163 ----------- ----------- $18,792,550 $19,629,713 =========== =========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) LIABILITIES APPLICABLE TO INVESTMENT IN REAL ESTATE Mortgages payable......................................... $18,331,898 $18,467,795 OTHER LIABILITIES Accounts payable and accrued expenses..................... 298,476 193,288 Tenant security deposits payable.......................... 86,739 67,008 Accrued interest payable -- mortgage...................... 133,842 134,661 Rent deferred credits..................................... 14,833 24,862 ----------- ----------- 18,865,788 18,887,614 ----------- ----------- MINORITY INTEREST........................................... 933 862 ----------- ----------- PARTNERS' EQUITY (DEFICIT) Limited partners, unit of investors....................... Limited partnership interest, 220 units authorized and outstanding............................................ 850,167 1,660,821 General partner........................................... (924,338) (919,584) ----------- ----------- (74,171) 741,237 ----------- ----------- $18,792,550 $19,629,713 =========== ===========
See notes to consolidated financial statements F-8 2545 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31,
1997 1996 ---------- ---------- REVENUE Rental income............................................. $5,209,762 $5,035,502 Interest income........................................... 45,382 53,477 Other income.............................................. 196,903 158,911 ---------- ---------- Total revenue.......................................... 5,452,047 5,247,890 ---------- ---------- OPERATING EXPENSES Leasing................................................... 95,322 161,447 General and administrative................................ 488,803 302,770 Management fees........................................... 313,723 254,423 Utilities................................................. 738,663 711,958 Repairs and maintenance................................... 645,346 698,806 Insurance................................................. 121,930 158,418 Taxes..................................................... 407,857 409,150 ---------- ---------- Total operating expenses............................... 2,811,644 2,696,972 ---------- ---------- OTHER EXPENSES Depreciation.............................................. 1,344,171 1,303,750 Amortization.............................................. 71,238 37,781 Interest expenses -- mortgage............................. 1,609,757 1,721,286 Partnership expenses...................................... 90,574 143,040 ---------- ---------- Total other expenses................................... 3,115,740 5,902,829 ---------- ---------- Loss before minority interest.......................... (475,337) (654,939) Minority interest in net loss of operating partnerships..... (105) (96) ---------- ---------- Net loss............................................... $ (475,442) $ (655,035) ========== ========== Net loss allocated to general partner....................... $ (4,754) $ (6,550) ========== ========== Net loss allocated to investor limited partners............. $ (470,688) $ (648,485) ========== ==========
See notes to consolidated financial statements F-9 2546 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 1997 AND 1996
INVESTOR GENERAL LIMITED PARTNER PARTNERS TOTAL --------- ---------- ---------- Balance December 31, 1995.............................. $(913,034) $2,537,823 $1,624,789 Distributions to partners.............................. -- (228,517) (228,517) Net loss............................................... (6,550) (648,485) (655,035) --------- ---------- ---------- Balance December 31, 1996.............................. (919,584) 1,660,821 741,237 Distributions to partners.............................. -- (339,966) (339,966) Net loss............................................... (4,754) (470,688) (475,442) --------- ---------- ---------- Balance December 31, 1997.............................. $(924,338) $ 850,167 $ (74,171) ========= ========== ==========
See notes to consolidated financial statements F-10 2547 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1997 1996 ----------- ------------ Cash flows from operating activities Net loss.................................................. $ (475,442) $ (655,035) Minority interest in net loss of operating partnerships... 105 96 Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization.......................... 1,415,409 1,341,531 Increase in tenants accounts receivable................ (48,778) (3,349) Increase in other receivables.......................... (37,434) (25,313) Decrease (increase) in tenant security deposits........ 35,140 (26,035) Decrease in prepaid expenses other assets.............. 82,389 36,400 (Increase) decrease in mortgage escrow deposits........ (159,858) 27,244 Increase (decrease) in accounts payable and accrued expenses............................................. 105,188 (39,213) Increase (decrease) in tenant security deposits payable.............................................. 19,731 (17,809) Decrease in accrued interest payable -- mortgage....... (819) (10,630) Decrease (increase) in rent deferred credits........... (10,029) 11,475 ----------- ------------ Net cash provided by operating activities............ 925,602 639,362 ----------- ------------ Cash flows from investing activities Investment in real estate................................. (1,221,983) (847,605) Decrease in reserve for replacements...................... 43,297 66,385 ----------- ------------ Net cash used in investing activities................ (1,178,686) (781,220) ----------- ------------ Cash flows from financing activities Proceeds from mortgage loan............................... -- 18,500,000 Payments on mortgages..................................... (135,897) (17,179,398) Distributions to partners................................. (339,966) (228,517) Distributions -- minority interest........................ (34) -- Decrease (increase) in deferred costs..................... 21,353 (735,735) ----------- ------------ Net cash (used in) provided by financing activities........................................ (454,544) 356,350 ----------- ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....................................... (707,628) 214,492 Cash and cash equivalents, beginning........................ 1,319,805 1,105,313 ----------- ------------ Cash and cash equivalents, ending........................... $ 612,177 $ 1,319,805 =========== ============ Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 1,610,576 $ 1,731,916 =========== ============
See notes to consolidated financial statements F-11 2548 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Olde Mill Investors Limited Partnership and Subsidiaries (the "Investor Partnership"), a Delaware limited partnership, was formed in 1985 to acquire a 99.99% general partnership interest in Calverton Construction Company Limited Partnership, Calverton Associates Limited Partnership and Walden Joint Venture Limited Partnership (the "Operating Partnerships"). The Operating Partnerships collectively own and operate a 700-unit apartment complex located in Beltsville, Maryland (the "Property") and is operating under the name of Light House at Twin Lakes I, II and III (previously Olde Mill Landing). The Investor Partnership and Operating Partnerships will terminate on December 31, 2030, or earlier upon the occurrence of certain events specified in the Partnership Agreements. The general partner of the Investor Partnership is Winthrop Financial Associates, A Limited Partnership, a Maryland Limited Partnership ("WFA"). The initial limited partner of the Investor Partnership was Three Winthrop Properties, Inc. ("Three Winthrop"). Three Winthrop Properties, Inc. is the limited partner of the Operating Partnerships. Profits and cash flow from normal operations, in general, are allocated 8% to WFA and 92% to the Investor Limited Partners and losses are allocated 1% to WFA and 99% to the Investor Limited Partners. After distributions of certain priority items, Investor Partnerships Residuals will be distributed 20% to WFA and 80% to the Investor Limited Partners. Basis of Consolidation The accompanying consolidated financial statements include the accounts of the Partnership and the Operating Partnerships prepared on the accrual basis of accounting. Three Winthrop's ownership in the Operating Partnerships has been reflected as a minority interest in the accompanying consolidated balance sheets and statements of operations. All significant intercompany accounts and transactions have been eliminated in consolidation. Investment in Real Estate Investment in real estate is carried at cost. Depreciation of rental property is provided using the straight-line method over the useful lives of each class of depreciable property. For income tax reporting, accelerated methods and lives are used. Buildings, improvements and personal property consist of the following as of December 31, 1997 and 1996:
CATEGORY USEFUL LIFE 1997 1996 -------- ----------- ----------- ----------- Buildings and improvements..................... 25 $22,753,245 $22,590,127 Personal property.............................. 10 4,348,285 3,289,420 Motor vehicles................................. 10 19,264 19,264 ----------- ----------- 27,120,794 25,898,811 Less: accumulated depreciation................. 13,338,360 11,994,189 ----------- ----------- $13,782,434 $13,904,622 =========== ===========
Deferred Costs Deferred costs consist of financing costs which are amortized over the term of the related mortgage, using the straight-line method. F-12 2549 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Rental Income Rental income is recognized as rents become due. Rental payments received in advance are deferred until earned. All leases between the operating partnerships and tenants of the property are operating leases. Income Taxes No provision has been made for income taxes in the consolidated financial statements. The Partners are required to report on their individual income tax returns their allocable share of taxable income, gains, losses, deductions and credits. Each Partnership files its own tax return on the accrual basis. Cash Equivalents For purpose of the consolidated statement of cash flows, the partnership considers all highly liquid investments of $242,183 be cash equivalents. The carrying amount approximates fair value because of the short maturity of this instrument. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTE B -- MORTGAGES PAYABLE The investor partnership obtained a $15,300,000 loan from GMAC Commercial Mortgage (GMAC) pursuant to a loan program of the Federal National Mortgage Association (FNMA). The loan bore interest at the rate of 10.625% per annum and was payable in monthly principal and interest payments of $141,849 through March 1, 1996. The loan was secured by a first mortgage on Phases I, II and IV of the property. On February 27, 1996, FNMA agreed to extend the maturity of the loan to September 1, 1996. One of the operating partnerships obtained a $3,036,400 loan that was insured by HUD and collateralized by Phase III of the project. The loan bore interest at the rate of 7.5% per annum and was payable in monthly principal and interest payments of $19,982 through July 2019. On August 9, 1996, the three operating partnerships refinanced both mortgage loans and obtained a $18,500,000 loan with First Union National Bank of North Carolina which is being serviced by GMAC. The loan bears interest at the rate of 8.75% per annum and is payable in monthly principal and interest payments of $145,540 commencing October 1, 1996 through August 1, 2006. On September 1, 2006, the entire outstanding principal with an approximate balloon payment of $16,494,409 together with all unpaid interest shall be due and payable in full. The loan may be prepaid at any time after the fourth anniversary of the note with a prepayment penalty equal to 1% of the principal being prepaid. Under agreements with the mortgage lender, the Operating Partnerships are required to make monthly escrow deposits of taxes, insurance and replacement of project assets. The liability of the Operating Partnerships is limited to the underlying value of the real estate collateral, plus other amounts deposited with the lender. F-13 2550 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Principal payments due on the mortgage for the five years following December 31, 1997 are as follows:
DECEMBER 31, ------------ 1998................................................... $148,284 1999................................................... 161,792 2000................................................... 176,531 2001................................................... 192,612 2002................................................... 210,158
NOTE C -- TAXABLE LOSS The taxable loss for 1997 and 1996 differs from the net loss for financial reporting purposes primarily due to differences in depreciation and rent deferred credits. The taxable loss for 1997 and 1996 is as follows:
1997 1996 --------- --------- Net loss for financial reporting purposes................... $(475,442) $(655,035) Excess of accelerated depreciation on real and personal property over book depreciation........................... 24,283 126,033 Other....................................................... 24,612 8,060 --------- --------- Taxable loss................................................ $(426,547) $(520,942) ========= =========
NOTE D -- RELATED PARTY TRANSACTIONS In connection with the refinancing of the mortgage notes on August 9, 1996, mortgage proceeds were used to pay an affiliate of the Investor Partnership's general partner and the Operating Partnership's limited partner a refinancing fee of $138,750. The Operating Partnerships have incurred charges by and commitments to related parties, including: (a) The property was managed by Winthrop Management through October 27, 1997, an affiliate of two of the partners. Pursuant to the management agreement the operating partnerships paid Winthrop a 5% management fee based on gross rental collections of the properties. The management fees for the years ended December 31, 1997 and 1996 amounted to $268,810 and $254,423, respectively. (b) On October 28, 1997, the partnership terminated Winthrop Management as the managing agent and appointed Insignia Residential Group, LP ("Insignia") as the new management agent (see note F to the financial statements). The current management agreement provides for a property management fee equal to 5% of the gross operating revenues generated by the properties. Fees of $44,913 were charged to operations for the year ended December 31, 1997. (c) First Winthrop Corporation, Inc., an affiliate of two of the partners, was paid a partnership administration fee out of cash flow which was included in administrative expenses. The administration fee for the years ended December 31, 1997 and 1996 amounted to $45,833 and $50,000, respectively. (d) Included in administrative expenses are asset management fees charged to operations for the two months ended December 31, 1997 amounting to $8,334, which is payable to an affiliate of two of the partners. F-14 2551 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (e) Included in partnership expenses is $7,136 of costs reimbursements charged to operations for the year ended December 31, 1997. The amounts are payable to an affiliate of the general partner starting in November 1997. NOTE E -- CONCENTRATION OF CREDIT RISK At December 31, 1997, the Operating Partnerships have cash in the amount of $382,465 held by the mortgage lender. This account is insured by the Federal Deposit Insurance Corporation up to $100,000. The uninsured portion of this balance at December 31, 1997 is $282,465. NOTE F -- OTHER INFORMATION On October 28, 1997, Insignia Financial Group acquired 100% of the class B stock of First Winthrop Corporation, an affiliate of the general partner. F-15 2552 OLDE MILL INVESTORS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 F-16 2553 INDEPENDENT AUDITORS' REPORT To the Partners OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY We have audited the accompanying consolidated balance sheets of Olde Mill Investors Limited Partnership and Subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in partners' equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Olde Mill Investors Limited Partnership And Subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDERS & SILVERMAN Bethesda, Maryland February 7, 1997 F-17 2554 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, ASSETS
1996 1995 ----------- ----------- INVESTMENT IN REAL ESTATE Land...................................................... $ 2,933,760 $ 2,933,760 Buildings and improvement................................. 25,898,811 25,051,206 ----------- ----------- 28,832,571 27,984,966 Less accumulated depreciation............................. 11,994,189 10,690,439 ----------- ----------- 16,838,382 17,294,527 OTHER ASSETS Cash and cash equivalents................................. 1,319,805 1,105,313 Tenant accounts receivable................................ 49,546 46,197 Other receivables......................................... 76,905 51,592 Tenant security deposits -- funded........................ 122,436 96,401 Prepaid expenses and other assets......................... 251,572 287,972 Escrow accounts and reserves.............................. 265,904 359,533 Deferred costs, net of accumulated amortization of $30,572 in 1996 and $1,542,522 in 1995......................... 705,163 7,209 ----------- ----------- $19,629,713 $19,248,744 =========== =========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) LIABILITIES APPLICABLE TO INVESTMENT IN REAL ESTATE Mortgages payable......................................... $18,467,795 $17,147,193 OTHER LIABILITIES Accounts payable and accrued expenses..................... 193,288 232,501 Tenant security deposits payable.......................... 67,008 84,817 Accrued interest payable.................................. 134,661 145,291 Rent deferred credits..................................... 24,862 13,387 ----------- ----------- 18,887,614 17,623,189 ----------- ----------- MINORITY INTEREST........................................... 862 766 ----------- ----------- PARTNERS' EQUITY (DEFICIT) Limited Partners, Units of Investors...................... Limited Partnership Interest, 220 units authorized and outstanding............................................ 1,660,821 2,537,823 General Partner........................................... (919,584) (913,034) ----------- ----------- 741,237 1,624,789 ----------- ----------- $19,629,713 $19,248,744 =========== ===========
See notes to consolidated financial statements F-18 2555 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31,
1996 1995 ---------- ---------- REVENUE Rental income............................................. $5,035,502 $5,023,379 Interest income........................................... 53,477 76,464 Other income.............................................. 158,911 141,545 ---------- ---------- Total revenue.......................................... 5,247,890 5,241,388 ---------- ---------- OPERATING EXPENSES Leasing................................................... 161,447 188,852 General and administrative................................ 302,770 321,386 Management fees........................................... 254,423 251,778 Utilities................................................. 711,958 692,673 Repairs and maintenance................................... 698,806 603,461 Insurance................................................. 158,418 160,162 Taxes..................................................... 409,150 436,409 ---------- ---------- Total operating expenses............................... 2,696,972 2,654,721 ---------- ---------- OTHER EXPENSES Depreciation.............................................. 1,303,750 1,190,523 Amortization.............................................. 37,781 86,588 Interest expenses......................................... 1,721,286 1,762,700 Other expenses............................................ 143,040 55,121 ---------- ---------- 5,902,829 5,749,653 ---------- ---------- Loss before minority interest.......................... (654,939) (508,265) Minority interest in Net Loss of operating partnerships..... (96) (111) ---------- ---------- Net Loss............................................... $ (655,035) $ (508,376) ========== ========== Net Loss allocated to general partner....................... $ (6,550) $ (5,084) ========== ========== Net Loss allocated to investor limited partners............. $ (648,485) $ (503,292) ========== ==========
See notes to consolidated financial statements F-19 2556 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 1996 AND 1995
INVESTOR LIMITED GENERAL PARTNERS PARTNER TOTAL ---------- --------- ---------- Balance December 31, 1994.............................. $3,261,115 $(907,950) $2,353,165 Distributions.......................................... (220,000) -- (220,000) Net Loss............................................... (503,292) (5,084) (508,376) ---------- --------- ---------- Balance, December 31, 1995............................. 2,537,823 (913,034) 1,624,789 Distributions.......................................... (228,517) -- (228,517) Net Loss............................................... (648,485) (6,550) (655,035) ---------- --------- ---------- Balance December 31, 1996.............................. $1,660,821 $(919,584) $ 741,237 ========== ========= ==========
See notes to consolidated financial statements F-20 2557 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1996 1995 ------------ ---------- Cash flows from operating activities Net Loss.................................................. $ (655,035) $ (508,376) Minority Interest in Net Loss of Operating Partnerships... 96 111 Adjustments to reconcile net loss to net cash provided by operating activities Depreciation and amortization.......................... 1,341,531 1,277,111 Increase in tenants accounts receivable................ (3,349) (25,346) Increase in accounts receivable -- other............... (25,313) (11,516) (Increase) decrease in tenant security deposits........ (26,035) 6,303 (Increase) decrease in prepaid expenses other assets... 36,400 (26,774) Decrease in escrow accounts............................ 27,244 40,584 Decrease in accounts payable and accrued expenses...... (39,213) (66,310) Decrease in tenant security deposits payable........... (17,809) -- Decrease in accrued interest payable................... (10,630) (1,234) Increase (decrease) in prepaid rent.................... 11,475 (1,855) ------------ ---------- Net cash provided by operating activities................... 639,362 682,698 ------------ ---------- Cash flows from investing activities Investment in rental property............................. (847,605) (303,466) (Increase) decrease in reserve for replacements........... 66,385 (12,915) ------------ ---------- Net cash used in investing activities....................... (781,220) (316,381) ------------ ---------- Cash flows from financing activities Proceeds from mortgage loan............................... 18,500,000 -- Payments on mortgages..................................... (17,179,398) (192,218) Distributions............................................. (228,517) (220,000) Increase in deferred costs................................ (735,735) -- ------------ ---------- Net cash provided by (used in) financing activities......... 356,350 (412,218) ------------ ---------- Net increase (decrease) in cash and cash equivalents........ 214,492 (45,901) Cash and cash equivalents, beginning........................ 1,105,313 1,151,214 ------------ ---------- Cash and cash equivalents, ending........................... $ 1,319,805 $1,105,313 ============ ========== Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 1,731,916 $1,763,934 ============ ==========
See notes to consolidated financial statements F-21 2558 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY (the "Investor Partnership"), a Delaware limited partnership, was formed in 1985 to acquire a 99.99% general partnership interest in Calverton Construction Company Limited Partnership, Calverton Associates Limited Partnership and Walden Joint Venture Limited Partnership (the "Operating Partnerships"). The Operating Partnerships collectively own and operate a 700-unit apartment complex located in Maryland (the "Property"). The Investor Partnership and Operating Partnerships will terminate on December 31, 2030, or earlier upon the occurrence of certain events specified in the Partnership Agreements. The general partner of the Investor Partnership is Winthrop Financial Associates, A Limited Partnership, a Maryland Limited Partnership ("WFA"). The initial limited partner of the Investor Partnership was Three Winthrop Properties, Inc. ("Three Winthrop"). Three Winthrop Properties, Inc. is the limited partner of the Operating Partnerships. Profits and cash flow from normal operations, in general, are allocated 8% to WFA and 92% to the Investor Limited Partners and losses are allocated 1% to WFA and 99% to the Investor Limited Partners. After distributions of certain priority items, Investor Partnerships Residuals will be distributed 20% to WFA and 80% to the Investor Limited Partners. Basis of Consolidation The accompanying consolidated financial statements include the accounts of the Partnership and the Operating Partnerships prepared on the accrual basis of accounting. Three Winthrop's ownership in the Operating Partnerships has been reflected as a minority interest in the accompanying consolidated balance sheets and statements of operations. All significant intercompany accounts and transactions have been eliminated in consolidation. Investment in Real Estate Investment in real estate is carried at cost. Depreciation of rental property is provided using the straight-line method over the useful lives of each class of depreciable property. For income tax reporting, accelerated methods and lives are used. Buildings, improvements and personal property consist of the following as of December 31, 1996 and 1995:
CATEGORY USEFUL LIFE 1996 1995 -------- ----------- ----------- ----------- Buildings and improvements.................... 25 $22,590,127 $22,561,152 Personal property............................. 10 3,289,420 2,470,790 Motor vehicles................................ 10 19,264 19,264 ----------- ----------- 25,898,811 25,051,206 Less: accumulated depreciation.............. 11,994,189 10,690,439 ----------- ----------- $13,904,622 $14,360,767 =========== ===========
Deferred Costs Deferred costs consist of financing costs which are amortized over the term of the related mortgage, using the straight-line method. F-22 2559 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Rental Income Rental income is recognized as rents become due. Rental payments received in advance are deferred until earned. All leases between the operating partnerships and tenants of the property are operating leases. Income Taxes No provision has been made for income taxes in the consolidated financial statements. The Partners are required to report on their individual income tax returns their allocable share of taxable income, gains, losses, deductions and credits. Each Partnership files its own tax return on the accrual basis. Cash Equivalents For purpose of the consolidated statement of cash flows, the partnership considers all highly liquid investments of $1,284,565 be cash equivalents. The carrying amount approximates fair value because of the short maturity of this instrument. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTE B -- MORTGAGES PAYABLE The investor partnership obtained a $15,300,000 loan from GMAC Commercial Mortgage (GMAC) pursuant to a loan program of the Federal National Mortgage Association (FNMA). The loan bore interest at the rate of 10.625% per annum and was payable in monthly principal and interest payments of $141,849 through March 1, 1996. The loan was secured by a first mortgage on Phases I, II and IV of the property. On February 27, 1996, FNMA agreed to extend the maturity of the loan to September 1, 1996. On of the operating partnerships obtained a $3,036,400 loan that was insured by HUD and collateralized by Phase III of the project. The loan bore interest at the rate of 7.5% per annum and was payable in monthly principal and interest payments of $19,982 through July 2019. On August 9, 1996, the three operating partnerships refinanced both mortgage loans and obtained a $18,500,000 loan with First Union National Bank of North Carolina which is being serviced by GMAC. The loan bears interest at the rate of 8.75% per annum and is payable in monthly principal and interest payments of $145,540 commencing October 1, 1996 through August 1, 2006. On September 1, 2006, the entire outstanding principal with an approximate balance of $16,494,409 together with all unpaid interest shall be due and payable in full. The loan may be prepaid at any time after the fourth anniversary of the note with a prepayment penalty equal to 1% of the principal being prepared. Under agreements with the mortgage lender, the Operating Partnerships are required to make monthly escrow deposits or taxes, insurance and replacement of project assets. The liability of the Operating Partnerships is limited to the underlying value of the real estate collateral, plus other amounts deposited with the lender. F-23 2560 OLDE MILL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Principal payments due on the mortgage for the five years following December 31, 1996 are as follows:
DECEMBER 31, ------------ 1997.................................................... $135,904 1998.................................................... 148,284 1999.................................................... 161,792 2000.................................................... 176,531 2001.................................................... 192,612
NOTE C -- TAXABLE LOSS The taxable loss for 1996 and 1995 differs from the net loss for financial reporting purposes primarily due to differences in depreciation. The taxable loss for 1996 and 1995 is as follows:
1996 1995 --------- --------- Net Loss for financial reporting purposes................... $(655,035) $(508,376) Excess of accelerated depreciation on real and personal property over book depreciation........................... 126,033 132,798 Other....................................................... 8,060 (2,247) --------- --------- Taxable Loss................................................ $(520,942) $(377,825) ========= =========
NOTE D -- RELATED PARTY TRANSACTIONS In connection with the refinancing of the mortgage notes on August 9, 1996, mortgage proceeds were used to pay an affiliate of the Investor partnership's general partner and the Operating Partnership's limited partner a refinancing fee of $138,750. The Operating Partnerships have incurred charges by the commitments to related parties, including: (a) The property is managed by Winthrop Management, an affiliate of two of the partners, pursuant to a management agreement. The operating partnerships pay a 5% management fee based on gross rental collections of the property. The management fee for the years ended December 31, 1996 and 1995 amounted to $254,423 and $251,778, respectively. (b) First Winthrop Corporation, Inc., an affiliate of two of the partners, is paid a partnership administration fee in the amount of $50,000 per annum out of cash flow which is included in administrative expenses. NOTE E -- CONCENTRATION OF CREDIT RISK At December 31, 1996, the Operating Partnerships have cash in the amount of $265,904 held by the mortgage lender. This account is insured by the Federal Deposit Insurance Corporation up to $100,000. The uninsured portion of this balance at December 31, 1996 is $165,904. F-24 2561 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 2562 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 2563 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 September , 1998 A-3 2564 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF ORCHARD PARK APARTMENTS 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 WE HAVE RETAINED ROBERT A. STANGER & MINIMUM NUMBER OF UNITS BEING TENDERED. 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 OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER, FROM A FINANCIAL POINT OF VIEW. COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 2565 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-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 Orchard Park Apartments 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-35 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-36 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-41 General...................................... S-41 Ranking...................................... S-41 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 Certain Tax Consequences to Non-Tendering and Partially Tendering Unitholders............ S-53 VALUATION OF UNITS............................. S-54 FAIRNESS OF THE OFFER.......................... S-55 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-55 Fairness to Unitholders who Tender their Units...................................... S-56 Fairness to Unitholders who do not Tender their Units................................ S-57 Comparison of Consideration to Alternative Consideration.............................. S-57 Allocation of Consideration.................. S-58 STANGER ANALYSIS............................... S-58 Experience of Stanger........................ S-59 Summary of Materials Considered.............. S-59 Summary of Reviews........................... S-60 Conclusions.................................. S-60 Assumptions, Limitations and Qualifications............................. S-60 Compensation and Material Relationships...... S-61 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71
i 2566
PAGE ---- YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72 Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-73 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77
PAGE ---- Distributions and Transfers of Units......... S-77 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
ii 2567 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 Orchard Park Apartments 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 2568 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 2569 - 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 $2,640 per unit 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). 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 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. 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 S-3 2570 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer 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. 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2571 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 100% of 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? 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: 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 S-5 2572 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 2573 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. 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. 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 5 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. 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 S-7 2574 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. 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 Code. The particular tax consequences to you of the exchange 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 2575 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the 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 2576 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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 proposed to be issued by AIMCO Class I Preferred Stock. 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 2577 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, 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 2578 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 50% of the units of your partnership. In the absence of such consent, your only 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 2579 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners or from other sources. 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 2580 - 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. S-14 2581 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 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 S-15 2582 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 2583 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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............................ $
S-17 2584 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-1 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 is not subject to such limitations. 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 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 generated in that capacity. The property manager received management fees of $61,972 in 1996, $57,524 in 1997 and $30,346 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. S-18 2585 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 Your Partnership and its Property. Orchard Park Apartments Limited Partnership is a South Carolina limited partnership which was formed on 1983 for the purpose of owning and operating a single apartment property located in Greenville, South Carolina, known as "Orchard Park Apartments". In 1983, it completed a private placement of units that raised net proceeds of approximately $2,675,000. Orchard Park Apartments consists of 172 apartment units. Your partnership has no employees. Property Management. Since December 1990, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2013, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,696,697, payable to Life Insurance Co. of Georgia, which bears interest at a rate of 9.75%. The mortgage debt is due in August 2014. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2586 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 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 2587
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 2588 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 2589
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 2590 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 2591 SUMMARY FINANCIAL INFORMATION OF ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP The summary financial information of Orchard Park Apartments Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Orchard Park Apartments Limited Partnership for the years ended December 31, 1997 and 1996, 1995, 1994 and 1993 is based on 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 of Your Partnership" included herein. See "Index to Financial Statements." ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues...................... 585,000 594,319 1,219,448 1,242,662 1,228,387 1,166,708 0 Net Income/(Loss)................... (72,356) (257,697) (80,375) (125,367) (41,310) (86,791) 0 BALANCE SHEET DATA: Real Estate, Net of Accumulated 1,210,184 Depreciation...................... 1,004,707 1,127,945 1,292,423 1,478,865 1,661,537 1,824,781 Total Assets........................ 1,399,535.. 1,562,730.. 1,505,027 1,756,228 1,852,479 1,959,345 2,118,141 Mortgage Notes Payable, including Accrued Interest.................. 3,727,602 4,043,263 3,777,657 3,860,659 3,938,356 4,008,864 4,073,875 Partners' Capital/(Deficit)......... (2,464,897) (2,569,863) (2,392,541) (2,312,166) (2,186,799) (2,145,489) (2,058,698)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $0
S-25 2592 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. 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 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 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 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 S-26 2593 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. 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 therefore 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 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 2594 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 $0 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 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 S-28 2595 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 prohibits any transfer of units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the offer. MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. S-29 2596 ALTERNATIVES CONSIDERED 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. 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 50% of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners or from other sources. 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 S-30 2597 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 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 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 2598 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 2599 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 2600 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. 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. S-34 2601 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." 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. 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. S-35 2602 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, (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 9:00 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 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, Denver, Colorado 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. S-36 2603 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-37 2604 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 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 S-38 2605 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 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 S-39 2606 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. 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-40 2607 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. 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. 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 S-41 2608 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 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 S-42 2609 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 payment. 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 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. S-43 2610 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-44 2611 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-45 2612 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-46 2613 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-47 2614 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-48 2615 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-49 2616 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 2617 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-51 2618 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 2619 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 UNITHOLDERS 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 unitholders who do not tender all of their units (a "Remaining Unitholders") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Unitholder will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Unitholders in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Unitholder'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 Unitholders 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 Unitholders 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 unitholder 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 unitholders. In the case of a Remaining Unitholder 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 unitholder's taxable income for the year of Termination. S-53 2620 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-54 2621 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-55 2622 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 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, a third party expert, that the cash 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 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 were $ , 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 $0. 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 S-56 2623 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................................ Not available Estimated Liquidation Proceeds............................ $
S-57 2624 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. 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-1 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-58 2625 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-59 2626 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 September 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 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 property was 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, S-60 2627 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-61 2628 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Orchard Park Apartments. 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, 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 a joint The purpose of the AIMCO Operating Partnership is to venture interest in Orchard Park Associates Joint conduct any business that may be lawfully conducted by Venture, a South Carolina joint venture, which owns and a limited partnership organized pursuant to the operates your partnership's property for capital Delaware Revised Uniform Limited Partnership Act (as appreciation and the production of income. 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 any acts to accomplish the foregoing including, without manner that permits AIMCO to be qualified as a REIT, limitation, borrowing funds 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-62 2629 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 by selling not more than 50 units for Partnership for any partnership purpose from time to cash and notes to selected persons who fulfill the time to the limited partners and to other persons, and requirements set for your partnership's agreement of to admit such other persons as additional limited limited partnership. The capital contribution need not partners, on terms and conditions and for such capital 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. contribution need not be equal for all OP Unitholders. 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 The general partner of your partnership may make loans The AIMCO Operating Partnership may lend or contribute to your partnership as the general partner, in its sole funds or other assets to its subsidiaries or other discretion, deems necessary for payment of any persons in which it has an equity investment, and such partnership obligations and expenses. Such loans will persons may borrow funds from the AIMCO Operating bear interest charged at a rate 1% above the prime Partnership, on terms and conditions established in the interest rate of Citibank N.A., New York, New York, but sole and absolute discretion of the general partner. To in no event will exceed the maximum legal rate and will the extent consistent with the business purpose of the be repaid from the first net revenues from operations AIMCO Operating Partnership and the permitted available prior to any distributions to limited activities of the general partner, the AIMCO Operating partners. Your partnership may not contract with the Partnership may transfer assets to joint ventures, general partner and its affiliates other than as set limited liability companies, partnerships, forth in your partnership's agreement of limited corporations, business trusts or other business partnership, nor make loans to the general partner. 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, if security is required therefor, restrictions on borrowings, and the general partner has to mortgage or subject to any other security device any full power and authority to borrow money on behalf of partnership assets upon such terms and in such amounts the AIMCO Operating Partnership. The AIMCO Operating as the general partner deems, in its reasonable Partnership has credit agreements that restrict, among discretion, to be in the best interests of your other things, its ability to incur indebtedness. See partnership. "Risk Factors -- Risks of Significant Indebtedness" in the accompanying Prospectus.
S-63 2630 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 limited partners and their representatives to with a statement of the purpose of such demand and at inspect and examine the books and records of account at such OP Unitholder's own expense, to obtain a current the principal place of business of your partnership or list of the name and last known business, residence or such other place or places as may be determined from mailing address of the general partner and each other the general partner from time to time during normal OP Unitholder. business hours upon reasonable notice.
Management Control The general partner of your partnership is solely All management powers over the business and affairs of responsible for the management of your partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business with all rights and powers generally conferred Inc., which is the general partner. No OP Unitholder by law or necessary, advisable or consistent in has any right to participate in or exercise control or connection therewith. The general partner must perform management power over the business and affairs of the such reasonable acts as may be consistent with good AIMCO Operating Partnership. The OP Unitholders have business practices in its performance as general the right to vote on certain matters described under partner. No limited partner may take part in or "Comparison of Ownership of Your Units and AIMCO OP interfere in any manner with the conduct or control of Units -- Voting Rights" below. The general partner may the business of your partnership or have the right or not be removed by the OP Unitholders with or without authority to act for or bind your partnership. 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 to your partnership partner is not liable to the AIMCO Operating or any limited partner for any loss or damage that may Partnership for losses sustained, liabilities incurred be caused by any acts performed or any failure to act or benefits not derived as a result of errors in by any of them if such acts were done in good faith judgment or mistakes of fact or law of any act or pursuant to authority granted to promote the interests omission if the general partner acted in good faith. of your partnership, which do not constitute fraud, The AIMCO Operating Partnership Agreement provides for gross negligence or willful misconduct. Moreover, the indemnification of AIMCO, or any director or officer of general partner is not liable to your partnership or AIMCO (in its capacity as the previous general partner the limited partner because any taxing authorities of the AIMCO Operating Partnership), the general disallowed or adjusted any deductions or credits in partner, any officer or director of general partner or your partnership income tax return. In addition, the the AIMCO Operating Partnership and such other persons general partner and its affiliates are entitled to as the general partner may designate from and against indemnification by your partnership against any loss or all losses, claims, damages, liabilities, joint or damage resulting from any act or omission performed or several, expenses (including legal fees), fines, omitted in good faith and in accordance with the settlements and other amounts incurred in connection authority granted to it to promote the interests of with any actions relating to the operations of the your partnership; provided that such acts do not AIMCO Operating Partnership, as set forth in the AIMCO constitute fraud, gross negligence or intentional Operating Partnership Agreement. The Delaware Limited misconduct. 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
S-64 2631 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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, a general partner of your partnership may has exclusive management power over the business and be removed for fraud, gross negligence or willful affairs of the AIMCO Operating Partnership. The general misconduct upon the affirmative vote of the limited partner may not be removed as general partner of the partners owning more than 50% of the outstanding units. AIMCO Operating Partnership by the OP Unitholders with Such affirmative vote is also required to elect a or without cause. Under the AIMCO Operating Partnership substitute general partner. A general partner may Agreement, the general partner may, in its sole resign if such resignation does not cause a default discretion, prevent a transferee of an OP Unit from under or result in the acceleration of the repayment of becoming a substituted limited partner pursuant to the any loan secured by your partnership's property and AIMCO Operating Partnership Agreement. The general sixty days prior to the effective date of such partner may exercise this right of approval to deter, resignation the general partner nominates a substitute delay or hamper attempts by persons to acquire a general partner willing and able to serve as such. A controlling interest in the AIMCO Operating Partner- limited partner may not transfer his interests in your ship. Additionally, the AIMCO Operating Partnership partnership without the consent of the general 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 Amendments to your partnership's agreement of limited With the exception of certain circumstances set forth partnership may be proposed by the limited partners in the AIMCO Operating Partnership Agreement, whereby owning at least 20% of the then outstanding limited the general partner may, without the consent of the OP partnership interests. Approval by a majority of the Unitholders, amend the AIMCO Operating Partnership then outstanding limited partnership interests is Agreement, amendments to the AIMCO Operating necessary to effect an amendment to your partnership's Partnership Agreement require the consent of the agreement of limited partnership. The general partner holders of a majority of the outstanding Common OP may amend your partnership's agreement of limited Units, excluding AIMCO and certain other limited partnership as required by law or necessary to effect exclusions (a "Majority in Interest"). Amendments to changes which do not adversely affect the rights or the AIMCO Operating Partnership Agreement may be increase the obligations of limited partners. proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to compensation for additional services nership is responsible for all expenses incurred rendered. 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-65 2632 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership and applicable law, a limited partner, negligence, no OP Unitholder has personal liability for unless he is deemed to be taking part in the control of the AIMCO Operating Partnership's debts and the business, is not bound by or personally liable for obligations, and liability of the OP Unitholders for any of the expenses, liabilities or obligations of your the AIMCO Operating Partnership's debts and obligations partnership beyond the amount contributed by the is generally limited to the amount of their invest- limited partner to the capital of your partnership, its ment in the AIMCO Operating Partnership. However, the notes for capital contributions to your partnership, limitations on the liability of limited partners for the limited partner's share of undistributed profits of the obligations of a limited partnership have not been your partnership and any property wrongly paid or clearly established in some states. If it were convey to him on account of his contribution, determined that the AIMCO Operating Partnership had including, but not limited to, money or property to been conducting business in any state without compli- which creditors were legally entitled. 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 an overriding partnership agreement, Delaware law generally requires fiduciary obligation to your partnership. However, your a general partner of a Delaware limited partnership to partnership's agreement of limited partnership provides adhere to fiduciary duty standards under which it owes that any partner or affiliate may engage in or possess its limited partners the highest duties of good faith, an interest in other business ventures of every nature fairness and loyalty and which generally prohibit such and description, including the acquisition, ownership, general partner from taking any action or engaging in financing, leasing, operation, management, syndication, any transaction as to which it has a conflict of brokerage, sale, construction and development of real interest. The AIMCO Operating Partnership Agreement property, which may be located in the market area or expressly authorizes the general partner to enter into, vicinity of your partnership's property and neither on behalf of the AIMCO Operating Partnership, a right your partnership nor any other partners will have any of first opportunity arrangement and other conflict rights in or to such independent ventures or the income avoidance agreements with various affiliates of the or profits derived therefrom. In addition, the general AIMCO Operating Partnership and the general partner, on partner is not required to devote all of its time or such terms as the general partner, in its sole and business efforts to the affairs of your partnership, absolute discretion, believes are advisable. The AIMCO but must devote so much of its time and attention to Operating Partnership Agreement expressly limits the your partnership as is necessary and advisable to liability of the general partner by providing that the successfully manage the affairs of your partnership. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-66 2633 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 An affirmative vote by holders of Except as otherwise required by Under the AIMCO Operating Partner- more than 50% of the outstanding applicable law or in the AIMCO ship Agreement, the OP Unitholders units is necessary for the sale of Operating Partnership Agreement, have voting rights only with your partnership's property, the the holders of the Preferred OP respect to certain limited matters sale or other disposal of all or Units will have the same voting such as certain amendments and substantially all of the assets of rights as holders of the Common OP termination of the AIMCO Operating your partnership, an amendment to Units. See "Description of OP Partnership Agreement and certain your partnership's agreement of Units" in the accompanying transactions such as the limited partnership, the removal of Prospectus. So long as any institution of bankruptcy the general partner for fraud, Preferred OP Units are outstand- proceedings, an assignment for the gross negligence or willful mis- ing, in addition to any other vote benefit of creditors and certain conduct, the election and admission or consent of partners required by transfers by the general partner of of a substitute general partner law or by the AIMCO Operating its interest in the AIMCO Operating upon the retire- Partnership Agree- Part-
S-67 2634 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ment of the general partner, the ment, the affirmative vote or nership or the admission of a election of a trustee to liquidate consent of holders of at least 50% successor general partner. and distribute your partnership's of the outstanding Preferred OP assets in certain circumstances and Units will be necessary for Under the AIMCO Operating Partner- the dissolution of your partnership effecting any amendment of any of ship Agreement, the general partner before the expiration of its terms. the provisions of the Partnership has the power to effect the The consent of the general partner Unit Designation of the Preferred acquisition, sale, transfer, also required to sell your OP Units that materially and exchange or other disposition of partnership's property, sell or adversely affects the rights or any assets of the AIMCO Operating dispose of all or substantially all preferences of the holders of the Partnership (including, but not of the assets of your partnership, Preferred OP Units. The creation or limited to, the exercise or grant amend your partnership's agreement issuance of any class or series of of any conversion, option, of limited partnership and partnership units, including, privilege or subscription right or terminate your partnership. without limitation, any partner- any other right available in ship units that may have rights connection with any assets at any The 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 unless all of the limited materially adversely affect the consolidation, reorganization or partners agree to continue your rights or preferences of the other combination of the AIMCO partnership and elect a successor holders of Preferred OP Units. With Operating Partnership with or into to the general partner by a vote of respect to the exercise of the another entity, all without the the holders of more than 50% of the above described voting rights, each consent of the OP Unitholders. then outstanding units. 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- Distribution from Net Cash From $ per Preferred OP Unit; tribute quarterly all, or such Operations are distributed not less provided, however, that at any time portion as the general partner may often than quarterly. Any proceeds and from time to time on or after in its sole and absolute discretion received from the sale or refi- the fifth anniversary of the issue determine, of Available Cash (as nancing of your partnership's date of the Preferred OP Units, the defined in the AIMCO Operating property will be distributed in AIMCO Operating Partnership may Partnership Agreement) generated by accordance with your partnership's adjust the annual distribution rate the AIMCO Operating Partnership agreement of limited partnership. on the Preferred OP Units to the during such quarter to the general The distributions payable to the lower of (i) % plus the annual partner, the special limited partners are not fixed in amount interest rate then applicable to partner and the holders of Common and depend upon the operating U.S. Treasury notes with a maturity OP Units on the record date 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. Your preferred stock which ranks on a interests in the AIMCO Operating partnership has made distri- parity with its Class H Cumu- Partnership on such record date. butions in the past and is Holders of any other Pre- projected to made distributions in 1998.
S-68 2635 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 interests to any other person and Preferred OP Units and the OP Units. The AIMCO Operating Part- be substituted by such transferee Preferred OP Units are not listed nership Agreement restricts the if such transfer is made in on any securities exchange. The transferability of the OP Units. compliance with the securities law Preferred OP Units are subject to Until the expiration of one year and in your partnership's agreement restrictions on transfer as set from the date on which an OP of limited partnership, the forth in the AIMCO Operating Unitholder acquired OP Units, transferee makes the rep- Partnership Agreement. subject to certain exceptions, such resentations required by your OP Unitholder may not transfer all partnership's agreement of limited Pursuant to the AIMCO Operating or any portion of its OP Units to partnership, a written instrument Partnership Agreement, until the any transferee without the consent evidencing the transfer is duly expiration of one year from the of the general partner, which executed and acknowledged, the date on which a holder of Preferred consent may be withheld in its sole interest transferred is not less OP Units acquired Preferred OP and absolute discretion. After the than one unit, except in limited Units, subject to certain expiration of one year, such OP circumstances consent may be exceptions, such holder of Unitholder has the right to withheld, the general partner Preferred OP Units may not transfer transfer all or any portion of its consents which in the sole all or any portion of its Pre- OP Units to any person, subject to discretion of the general partner, ferred OP Units to any transferee the satisfaction of certain the transfer fee is paid and such without the consent of the general conditions specified in the AIMCO additional conditions as are set partner, which consent may be Operating Partnership Agreement, forth in your partnership's withheld in its sole and absolute including the general partner's agreement of limited partnership discretion. After the expiration of right of first refusal. See are satisfied. one year, such holders of Preferred "Description of OP Units -- OP Units has the right to transfer Transfers and Withdrawals" in the There are no redemption rights all or any portion of its Preferred accompanying Prospectus. associated with your units. OP Units to any person, subject to the satisfaction of
S-69 2636 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-70 2637 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 from your partnership but may receive reimbursement for expenses generated in that capacity and fees for additional services. The property manager received management fees of $61,972 in 1996, $57,524 in 1997 and 30,346 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's 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'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 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-71 2638 YOUR PARTNERSHIP GENERAL Orchard Park Apartments Limited Partnership is a South Carolina limited partnership which raised net proceeds of approximately $2,675,000 in 1983 through a private offering. The promoter for the private offering of your partnership was US Shelter Corporation. Insignia acquired your partnership in December 1990. AIMCO acquired Insignia in October, 1998. There are currently a total of 48 limited partners of your partnership and a total of 50 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on 1983 for the purpose of owning and operating a single apartment property located in Greenville, South Carolina, known as "Orchard Park Apartments." Your partnership's property consists of 172 apartment units. There are 80 one-bedroom apartments and 92 two-bedroom apartments. The total rentable square footage of your partnership's property is 146,708 square feet. Your partnership's property had an average occupancy rate of approximately 97.09% in 1996 and 97.09% in 1997. The average annual rent per apartment unit is approximately $6,283. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1990, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $61,972, $57,524 and $30,346, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2013 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-72 2639 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,696,697, payable to Life Insurance Co. of Georgia, which bears interest at a rate of 9.75%. The mortgage debt is due in August 2014. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 2640 Below is selected financial information for Orchard Park Apartments Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 170,314 $ 190,743 $ 199,575 $ 190,565 $ 176,663 $ 91,127 $ 32,195 Land & Building.............. 5,615,860 5,564,576 5,610,717 5,518,434 5,455,831 5,396,968 5,330,748 Accumulated Depreciation..... (4,611,153) (4,354,392) (4,482,772) (4,226,011) (3,976,966) (3,735,431) (3,505,967) Other Assets................. 224,514 161,803 177,507 273,240 196,951 206,681 261,165 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 1,399,535 $ 1,562,730 $ 1,505,027 $ 1,756,228 $ 1,852,479 $ 1,959,345 $ 2,118,141 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... 3,727,602 4,043,263 3,777,657 3,860,659 3,938,356 4,008,864 4,073,875 Other Liabilities............ 136,830 89,330 119,911 207,735 100,922 95,970 102,964 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... $ 3,864,432 $ 4,132,593 $ 3,897,568 $ 4,068,394 $ 4,039,278 $ 4,104,834 $ 4,176,839 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $(2,464,897) $(2,569,863) $(2,392,541) $(2,312,166) $(2,186,799) $(2,145,489) $(2,058,698) =========== =========== =========== =========== =========== =========== ===========
ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP ------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, -------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- --------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue........................ $528,519 $ 532,044 $1,085,769 $1,103,297 $1,072,133 $1,000,102 $ Other Income.......................... 56,481 62,275 133,679 139,365 156,254 166,606 -------- --------- ---------- ---------- ---------- ---------- ---------- Total Revenue................ $585,000 $ 594,319 $1,219,448 $1,242,662 $1,228,387 $1,166,708 $ 0 -------- --------- ---------- ---------- ---------- ---------- ---------- Operating Expenses.................... 301,759 485,947 583,511 645,933 545,937 537,488 General & Administrative.............. 10,222 7,583 883 58 196 109 Depreciation.......................... 128,381 128,381 256,761 249,045 241,536 229,464 Interest Expense...................... 182,027 186,073 372,124 377,428 384,618 390,134 Property Taxes........................ 44,467 44,032 86,544 95,565 97,410 96,304 -------- --------- ---------- ---------- ---------- ---------- ---------- Total Expenses............... $666,856 $ 852,016 $1,299,823 $1,368,029 $1,269,697 $1,253,499 $ 0 -------- --------- ---------- ---------- ---------- ---------- ---------- Net Income............................ $(81,856) $(257,697) $ (80,375) $ (125,367) $ (41,310) $ (86,791) $ 0 ======== ========= ========== ========== ========== ========== ========== Extraordinary Items................... 9,500 -------- Net Income................... $(72,356) ========
S-74 2641 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net loss of $72,356 for the six months ended June 30, 1998, compared to a net loss of $257,697 for the six months ended June 30, 1997. The increase in net income of $185,341 was primarily the result of decreased operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $585,000 for the six months ended June 30, 1998, compared to $594,319 for the six months ended June 30, 1997, a decrease of $9,319, or 1.57%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $301,759 for the six months ended June 30, 1998, compared to $485,947 for the six months ended June 30, 1997, an increase of $184,188 or 37.90%. This is primarily due to increases in corporate unit expense, cleaning & decorating expense and contract services expense. Management expenses totaled $30,346 for the six months ended June 30, 1998, compared to $30,481 for the six months ended June 30, 1997, a decrease of $135 or 0.44%. General and Administrative Expenses General and administrative expenses totaled $10,222 for the six months ended June 30, 1998 compared to $7,583 for the six months ended June 30, 1997, an increase of $2,639 or 34.80%. The increase is primarily due to non-capitalizable office & computer expenses & training expenses increasing. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $182,027 for the six months ended June 30, 1998, compared to $186,073 for the six months ended June 30, 1997, a decrease of $4,046, or 2.17%. Interest Income Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net loss of $80,375 for the year ended December 31, 1997, compared to a net loss of $125,367 for the year ended December 31, 1996. The increase in net income of $44,992 was primarily the result of a reduction in property improvement costs. These factors are discussed in more detail in the following paragraphs. S-75 2642 Revenues Rental and other property revenues from the partnership's property totaled $1,219,448 for the year ended December 31, 1997, compared to $1,242,662 for the year ended December 31, 1996, a decrease of $23,214, or 1.87%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $583,511 for the year ended December 31, 1997, compared to $645,933 for the year ended December 31, 1996, a decrease of $62,422 or 9.66%. The decrease resulted from gutter repairs and other exterior maintenance completed in prior year. Management expenses totaled $57,524 for the year ended December 31, 1997, compared to $61,972 for the year ended December 31, 1996, a decrease of $4,448, or 7.18%. The decrease resulted from decreased revenues as management fees are calculated based on a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $883 for the year ended December 31, 1997 compared to $58 for the year ended December 31, 1996, an increase of $825. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $372,124 for the year ended December 31, 1997, compared to $377,428 for the year ended December 31, 1996, a decrease of $5,304, or 1.41%. Interest Income Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $125,367 for the year ended December 31, 1996, compared to a net loss of $41,310 for the year ended December 31, 1995. The decrease in net income of $84,057, or 203.48% was primarily the result of an increase in property operating expenses offset by an increase in revenue. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,242,662 for the year ended December 31, 1996, compared to $1,228,387 for the year ended December 31, 1995, an increase of $14,275, or 1.16%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $645,933 for the year ended December 31, 1996, compared to $545,937 for the year ended December 31, 1995, an increase of $99,996 or 18.32%. The increase resulted from costs related to exterior and interior improvements. Management expenses totaled $61,972 for the year ended December 31, 1996, compared to $61,401 for the year ended December 31, 1995, an increase of $571, or .93%. General and Administrative Expenses General and administrative expenses totaled $58 for the year ended December 31, 1996 compared to $196 for the year ended December 31, 1995, a decrease of $138. S-76 2643 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $377,428 for the year ended December 31, 1996, compared to $384,618 for the year ended December 31, 1995, a decrease of $7,190, or 1.87%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $170,314 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 loss or damage that may be caused by any acts performed or any failure to act by any of them if such acts were done in good faith pursuant to authority granted to promote the interests of your partnership, which do not constitute fraud, gross negligence or willful misconduct. Moreover, the general partner is not liable to your partnership or the limited partner because any taxing authorities disallowed or adjusted any deductions or credits in your partnership income tax return. 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 owned by AIMCO. See "Conflicts of Interest." The general partner and its affiliates are entitled to indemnification by your partnership against any loss or damage resulting from any act or omission performed or omitted in good faith and in accordance with the authority granted to it to promote the interests of your partnership; provided that such acts do not constitute fraud, gross negligence or intentional misconduct. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions Your partnership has not made any distributions in the last five years. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). S-77 2644 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ Unavailable 1995........................................................ 1996........................................................ $ 2,500 1997........................................................ 57,524 1998 (through June 30)...................................... 30,346
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... Unavailable 1996........................................... $ 61,972 1997........................................... 57,524 1998 (through June 30)......................... 30,346
If the offer had been made in such prior periods, there would not have been any material difference in the compensation and distributions that would have been paid to the general partner of your partnership, or the company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-78 2645 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. S-79 2646 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet -- Income Tax Basis as of June 30, 1998 (unaudited).......................................... F-2 Condensed Statements of Operations -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)... F-3 Condensed Statements of Cash Flows -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)... F-4 Notes to Condensed Financial Statements..................... F-5 Balance Sheets -- Income Tax Basis as of December 31, 1997 and 1996 (unaudited)...................................... F-5 Statements of Operations -- Income Tax Basis for the years ended December 31, 1997, 1996 and 1995 (unaudited)........ F-6 Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1997, 1996 and 1995 (unaudited)........ F-7
F-1 2647 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP CONDENSED BALANCE SHEET -- INCOME TAX BASIS JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 170,314 Other Assets................................................ 224,514 Investment Property: Land...................................................... 619,171 Building and related personal property.................... 4,996,689 ----------- 5,615,860 Less: Accumulated depreciation............................ (4,611,153) 1,004,707 ----------- ----------- Total Assets...................................... $ 1,399,535 =========== LIABILITIES AND PARTNERS' CAPITAL A/P & Other Accrued Liabilities............................. $ 167,240 Notes Payable............................................... 3,697,192 Partners' Capital........................................... (2,464,897) ----------- Total Liabilities and Partners' Capital........... $ 1,399,535 ===========
F-2 2648 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP CONDENSED STATEMENTS OF OPERATIONS -- INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 -------- --------- Revenues: Rental Income............................................. $528,519 $ 532,044 Other Income.............................................. 56,481 62,275 -------- --------- Total Revenues.................................... 585,000 594,319 Expenses: Operating Expenses........................................ 302,481 493,530 Depreciation Expense...................................... 128,381 128,381 Interest Expense.......................................... 182,027 186,073 Property Tax Expense...................................... 44,467 44,032 -------- --------- Total Expenses.................................... 657,356 852,016 Net Loss.......................................... (72,356) (257,697) ======== =========
F-3 2649 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP CONDENSED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------- 1998 1997 -------- -------- Operating Activities: Net Income (loss)......................................... $(72,356) $(257,697) Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 128,381 128,381 Changes in accounts: Receivables and deposits and other assets............ (4,723) 60,898 Accounts Payable and accrued expenses................ 16,919 104,750 -------- -------- Net cash provided by (used in) operating activities...................................... 68,221 36,332 -------- -------- Investing Activities: Property improvements and replacements.................... (5,143) (46,142) Net (increase)/decrease in restricted escrows............. (42,284) 50,539 -------- -------- Net cash provided by (used in) investing activities...................................... (47,427) 4,397 -------- -------- Financing Activities: Payments on mortgage...................................... (50,055) (40,551) -------- -------- Net cash provided by (used in) financing activities...................................... (50,055) (40,551) -------- -------- Net increase (decrease) in cash and cash equivalents..................................... (29,261) 178 Cash and cash equivalents at beginning of year.............. 199,575 190,565 -------- -------- Cash and cash equivalents at end of period.................. $170,314 $190,743 ======== ========
F-4 2650 ORCHARD PARK APARTMENTS LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Orchard Park Apartments Limited Partnership as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with the accounting basis for Federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis for Federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 2651 ORCHARD PARK BALANCE SHEETS -- INCOME TAX BASIS (UNAUDITED) ASSETS
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 199,575 $ 190,565 Other Assets................................................ 177,507 273,240 Investment Property: Land...................................................... 619,171 619,171 Building and related personal property.................... 4,991,548 4,899,263 ----------- ----------- 5,610,719 5,518,434 Less: Accumulated depreciation............................ (4,482,774) (4,226,011) ----------- ----------- 1,127,945 1,292,423 ----------- ----------- Total Assets...................................... $ 1,505,027 $ 1,756,228 =========== =========== LIABILITIES AND PARTNERS' CAPITAL A/P & Other Accrued Liabilities............................. $ 150,321 $ 240,045 Notes Payable............................................... 3,747,247 3,828,349 Partners' Capital........................................... (2,392,541) (2,312,166) ----------- ----------- Total Liabilities and Partners' Capital........... $ 1,505,027 $ 1,756,228 =========== ===========
F-6 2652 ORCHARD PARK STATEMENTS OF OPERATIONS -- INCOME TAX BASIS (UNAUDITED)
YEARS ENDED DECEMBER 31, ------------------------------------ 1997 1996 1995 ---------- ---------- ---------- Revenues: Rental Income.......................................... $1,085,769 $1,103,297 $1,072,133 Other Income........................................... 133,679 139,365 156,254 ---------- ---------- ---------- Total Revenues................................. 1,219,448 1,242,662 1,228,387 Expenses: Operating Expenses..................................... 584,394 645,991 546,133 Depreciation Expense................................... 256,761 249,045 241,536 Interest Expense....................................... 372,124 377,428 384,618 Property Tax Expense................................... 86,544 95,565 97,410 ---------- ---------- ---------- Total Expenses................................. 1,299,823 1,368,029 1,269,697 Net (Income) Loss.............................. $ (80,375) $ (125,367) $ (41,310) ========== ========== ==========
F-7 2653 ORCHARD PARK STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED)
YEAR ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 -------- --------- -------- Operating Activities: Net Income (loss)......................................... $(80,375) $(125,367) $(41,310) Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 256,761 249,045 241,536 Changes in accounts: Receivables and deposits and other assets............ 95,733 (76,289) 9,730 Accounts Payable and accrued expenses................ (89,724) 139,123 4,951 -------- --------- -------- Net cash provided by (used in) operating activities...................................... 182,395 186,512 214,907 -------- --------- -------- Investing Activities: Property improvements and replacements.................... (92,283) (62,603) (58,863) -------- --------- -------- Net cash provided by (used in) investing activities...................................... (92,283) (62,603) (58,863) -------- --------- -------- Financing Activities: Payments on mortgage...................................... (81,102) (110,007) (70,508) -------- --------- -------- Net cash provided by (used in) financing activities...................................... (81,102) (110,007) (70,508) -------- --------- -------- Net increase (decrease) in cash and cash equivalents..................................... 9,010 13,902 85,536 Cash and cash equivalents at beginning of year.............. 190,565 176,663 91,127 -------- --------- -------- Cash and cash equivalents at end of period.................. $199,575 $ 190,565 $176,663 ======== ========= ========
F-8 2654 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 2655 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 2656 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 September , 1998 A-3 2657 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF PARK TOWNE PLACE ASSOCIATES 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 2658 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 Park Towne Place 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-29 Expected Benefits of the Offer............... S-30 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-35 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-36 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 2659
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-71 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership............. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 2660 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 Park Towne Place 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 2661 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 2662 - 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). Your partnership has not paid any distributions on your units since the inception of your partnership. 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 made a distribution in the past 5 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). 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 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. 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 S-3 2663 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 2664 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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. 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-5 2665 (This page intentionally left blank) S-6 2666 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. 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. 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 5 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. 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 S-7 2667 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. 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. Although your partnership did not make any distributions in 1998, it might make distributions in the future. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 2668 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 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 S-9 2669 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 2670 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, 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. 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 S-11 2671 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 0% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 50% of the partners units of your partnership. In the absence of such consent, your only 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 S-12 2672 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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 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). Your partnership has not paid any distributions on your units since the inception of your partnership. - 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. S-13 2673 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 2674 - 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 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 S-15 2675 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 2676 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 2677 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, unlike the general partner of the AIMCO Operating Partnership, the general partner of your partnership is entitled to compensation for its services as 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $60,000 in 1986, increasing annually at a rate of 6% and 20% of Cash Flow for any year in which Cash Flow exceeds the forecasted amount for such year and may receive reimbursement for expenses generated in such capacity. The property manager received management fees of $203,451 in 1996, $196,956 in 1997 and $169,162 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 Your Partnership and its Property. Park Towne Place Associates Limited Partnership is a Delaware limited partnership which was formed on October 18, 1985 for the purpose of owning and operating a single apartment property located in Philadelphia, Pennsylvania, known as Park Towne Apartments. In 1986, it completed a private placement of units that raised net proceeds of approximately $38,000,000. Park Towne Apartments consists of 973 apartment units. Your partnership has no employees. S-18 2678 Property Management. Since November 1997, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2035, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $38,082,898, payable to First Union and La Salle, which bears interest at a rate of 9.13%. The mortgage debt is due in November 2006. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2679 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, 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 2680
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 2681 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 the exchange offers.
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............................. (6,634) (20,663) -------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) -------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) -------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- -------- --------- Net income........................................ $ 10,579 $ (38,135) ======== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 2682
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 2683 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)...................................... $ 10,579 $(38,135) 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............ 3,877 7,752 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............................. 60,297 104,471 Interest on convertible debentures..................... (5,012) (10,003) Preferred unit distributions........................... (15,107) (30,214) -------- -------- Funds from operations.................................. $121,674 $170,742 ======== ========
S-24 2684 SUMMARY FINANCIAL INFORMATION OF PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP The summary financial information of Park Towne Place Associates Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Park Towne Place Associates 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 of Your Partnership" included herein. See "Index to Financial Statements." PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... $ 5,628,261 $ 0 $10,859,157 $10,255,443 $10,263,857 $ 9,971,517 $10,302,889 Net Income/(Loss)............ (205,580) 0 (1,710,405) (1,815,532) (1,081,208) (2,803,531) (2,302,967) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... $30,591,159 $ 0 $31,526,794 $33,051,649 $32,484,504 $34,209,417 $35,905,032 Total Assets................. 34,944,184 0 35,795,181 37,674,625 34,509,825 35,647,274 37,840,800 Mortgage Notes Payable, including Accrued Interest................... 38,730,410 0 38,513,760 38,772,117 33,671,066 33,689,089 33,885,216 Partners' Capital/(Deficit).......... (4,441,909) 0 (4,236,329) (2,525,924) (710,392) 370,816 3,174,347
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $0
S-25 2685 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. 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 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 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. S-26 2686 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 Code. 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 therefore 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 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. 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 S-27 2687 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. Distributions with respect to your units for the six months ended June, 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 S-28 2688 AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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). S-29 2689 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 50% of the partners units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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. Your Partnership has not paid any distributions on your units since the inception of your partnership. S-30 2690 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 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). Your Partnership has not paid any distributions on your units since the inception of your partnership. 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 2691 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 2692 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 2693 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. 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 S-34 2694 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." 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. 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 S-35 2695 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, (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 9:00 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 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, Denver, Colorado 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. S-36 2696 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-37 2697 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, which change, 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 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 S-38 2698 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 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 S-39 2699 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-40 2700 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. 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-41 2701 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-42 2702 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 payment. 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 OP Units and any such S-43 2703 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-44 2704 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-45 2705 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-46 2706 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-47 2707 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-48 2708 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-49 2709 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 2710 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-51 2711 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 2712 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 2713 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 2714 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 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, a third party expert, 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 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. Distributions with respect to your units for the six months ended June, 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." 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-55 2715 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................................ Not available Estimated Liquidation Proceeds............................ $
S-56 2716 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. 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-1 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-57 2717 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 2718 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 September 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 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 property was 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, S-59 2719 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 2720 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Park Towne Apartments. 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, maintain, The purpose of the AIMCO Operating Partnership is to operate, lease, sell and dispose of your partnership's conduct any business that may be lawfully conducted by property. Subject to restrictions contained in your a limited partnership organized pursuant to the partnership's agreement of limited partnership, your Delaware Revised Uniform Limited Partnership Act (as partnership may perform all act necessary, advisable or amended from time to time, or any successor to such convenient to the business of your partnership includ- statute) (the "Delaware Limited Partnership Act"), ing 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-61 2721 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 382 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 In addition, the general partner may sell additional Unitholder. See "Description of OP Units -- Management limited partnership interests on such terms and by the AIMCO GP" in the accompanying Prospectus. conditions and the additional limited partners will Subject to Delaware law, any additional partnership have such rights and obligations as the general partner interests may be issued in one or more classes, or one determines; provided that such additional limited or more series of any of such classes, with such partnership interests may not decrease pro rata the designations, preferences and relative, partici- interests of the original limited partners by more than pating, optional or other special rights, powers and 25% and such limited partners may purchase the duties as shall be determined by the general partner, additional limited partnership interests pro rata in in its sole and absolute discretion without the accordance with the percentage of interests they own approval of any OP Unitholder, and set forth in a for a period of 45 days after notice of such sale is written document thereafter attached to and made an given to the original limited partners. exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions The partnership agreement specifies certain contracts The AIMCO Operating Partnership may lend or contribute that are to be entered into with the general partner funds or other assets to its subsidiaries or other and its affiliates. In addition, partners and their persons in which it has an equity investment, and such affiliates are authorized to lend money to your persons may borrow funds from the AIMCO Operating partnership which will be evidence by a promissory note Partnership, on terms and conditions established in the which bears interest at a commercially reasonable rate sole and absolute discretion of the general partner. To not in excess of 3% above the prime interest rate the extent consistent with the business purpose of the charged by the Third First National Bank of Boston and AIMCO Operating Partnership and the permitted provide that the obligation of your partnership to make activities of the general partner, the AIMCO Operating interest and principal payments thereunder will be Partnership may transfer assets to joint ventures, subordinate to the obligation of your partnership to limited liability companies, partnerships, pay unrelated creditors of your partnership but will corporations, business trusts or other business have priority over distributions to the partners. 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 on the credit of and enter into restrictions on borrowings, and the general partner has obligations on behalf of your partnership and to give full power and authority to borrow money on behalf of as security therefor any partnership's property. the AIMCO Operating Partnership. The AIMCO Operating 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.
S-62 2722 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 containing the names and the number of units owned at such OP Unitholder's own expense, to obtain a current all reasonable times during normal business hours at list of the name and last known business, residence or the principal office of your partnership. mailing address of the general partner and each other OP Unitholder.
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. No limited partner has any authority or AIMCO Operating Partnership. The OP Unitholders have right to act for or bind your partnership or to 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 Units -- Voting Rights" below. The general partner may applicable statutes. 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 will not incur any liability, partner is not liable to the AIMCO Operating responsibility or accountability for damages or other- Partnership for losses sustained, liabilities incurred wise to your partnership or any limited partner arising or benefits not derived as a result of errors in out of any acts performed or any omission by any of judgment or mistakes of fact or law of any act or them if they believed in good faith that such act or omission if the general partner acted in good faith. omission was in the best interests of your partnership The AIMCO Operating Partnership Agreement provides for and such course of conduct did not constitute indemnification of AIMCO, or any director or officer of negligence or misconduct on the part of the general AIMCO (in its capacity as the previous general partner partner. In addition, your partnership will, to the of the AIMCO Operating Partnership), the general extent permitted by law, indemnify and save harmless partner, any officer or director of general partner or the general partner and its affiliates against and from the AIMCO Operating Partnership and such other persons any loss, liability, cost or expenses (including as the general partner may designate from and against reasonable attorneys' fees) or damage sustained by them all losses, claims, damages, liabilities, joint or in connection with your partnership provided that such several, expenses (including legal fees), fines, loss, liability, cost or expense or damage was not the settlements and other amounts incurred in connection result of negligence or misconduct on the part of the with any actions relating to the operations of the general partners or such persons. The general partner, AIMCO Operating Partnership, as set forth in the AIMCO its affiliates and any placing broker will not be Operating Partnership Agreement. The Delaware Limited indemnified for liabilities arising under Federal and Partnership Act provides that subject to the standards state securities laws unless (1) there has been a and restrictions, if any, set forth in its partnership successful adjudication on the merits of each count agreement, a limited partnership may, and shall have involving securities law violations, (2) such claims the power to, indemnify and hold harmless any partner have been dismissed with prejudice on the merits or other
S-63 2723 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP by a court of competent jurisdiction or (3) a court of person from and against any and all claims and demands competent jurisdiction approves settlement of the whatsoever. It is the position of the Securities and claims. In such claim for indemnification for Federal Exchange Commission that indemnification of directors or state securities law violation, the party seeking and officers for liabilities arising under the indemnification must place before the court the Securities Act is against public policy and is position of the SEC and any other applicable regulatory unenforceable pursuant to Section 14 of the Securities agency with respect to the issue of indemnification for Act of 1933. securities law violations. Such indemnity will be paid from, and only to the extent of, partnership assets.
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 the vote of the limited partners holding affairs of the AIMCO Operating Partnership. The general 51% of the then 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 has the right to admit any person as an additional or Agreement, the general partner may, in its sole substitute general partner with the consent of the discretion, prevent a transferee of an OP Unit from limited partners owning more than 50% of the then becoming a substituted limited partner pursuant to the outstanding units. A limited partner may not transfer AIMCO Operating Partnership Agreement. The general his interests without the consent of the general partner may exercise this right of approval to deter, 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 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 upon approval by the limited partners owning in the AIMCO Operating Partnership Agreement, whereby more than 50% of the units and the general partner. the general partner may, without the consent of the OP Amendments to certain sections specified in your Unitholders, amend the AIMCO Operating Partnership partnership's agreement of limited partnership require Agreement, amendments to the AIMCO Operating the unanimous consent of all of the limited partners. Partnership Agreement require the consent of the In addition, the general partner may amend your part- holders of a majority of the outstanding Common OP nership's agreement of limited partnership to comply Units, excluding AIMCO and certain other limited with the tax laws. exclusions (a "Majority in Interest"). Amendments to the AIMCO Operating Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives $60,000 in 1986, increasing annually at a rate capacity as general partner of the AIMCO Operating of 6% and 20% of Cash Flow for any year in which Cash Partnership. In addition, the AIMCO Operating Part- Flow exceeds the forecasted amount for such year and nership is responsible for all expenses incurred fees which may be paid for additional services. relating to the AIMCO Operating Partnership's ownership Moreover, the general partner or certain affiliates may of its assets and the operation of the AIMCO Operating be entitled to compensation for additional services Partnership and reimburses the general partner for such rendered. expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
S-64 2724 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 any negligence, no OP Unitholder has personal liability for debts, liabilities, contract, or obligation 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 when due under your the AIMCO Operating Partnership's debts and obligations partnership's agreement of limited partnership. After is generally limited to the amount of their invest- its capital contribution has been fully paid, no ment in the AIMCO Operating Partnership. However, the limited partner is required to make any further capital limitations on the liability of limited partners for contributions or lend any funds to your partnership, the obligations of a limited partnership have not been except as provided under applicable law. 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. The general partner must at all fairness and loyalty and which generally prohibit such times act in a fiduciary manner toward your partnership general partner from taking any action or engaging in and the limited partners. The general partner and its any transaction as to which it has a conflict of affiliates may engage in or possess an interest in interest. The AIMCO Operating Partnership Agreement other business ventures of every nature and expressly authorizes the general partner to enter into, description, including, without limitation, real estate on behalf of the AIMCO Operating Partnership, a right business ventures, whether or not such other of first opportunity arrangement and other conflict enterprises are in competition with any activities of avoidance agreements with various affiliates of the your partnership. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 2725 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 66 2/3% of the outstanding units the holders of the Preferred OP respect to certain limited matters and the consent of the general Units will have the same voting such as certain amendments and partner, your partnership may en- rights as holders of the Common OP termination of the AIMCO Operating gage in any business other than as Units. See "Description of OP Partnership Agreement and certain set forth in your partnership's Units" in the accompanying transactions such as the agreement of limited partnership, Prospectus. So long as any institution of bankruptcy liquidate or dissolve in whole or Preferred OP Units are outstand- proceedings, an assignment for the in part, provided that your ing, in addition to any other vote benefit of creditors and certain partnership may not dissolve as or consent of partners required by transfers by the general partner of long as it owes obligations to GMAC law or by the AIMCO Operating its interest in the AIMCO Operating Commercial Partnership Agree- Part-
S-66 2726 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Mortgage Corporation, consolidate, ment, the affirmative vote or nership or the admission of a merge or enter into any form of consent of holders of at least 50% successor general partner. consolidation with or into any of the outstanding Preferred OP other entity or institute Units will be necessary for Under the AIMCO Operating Partner- bankruptcy proceedings. The consent effecting any amendment of any of ship Agreement, the general partner of the limited partners holding the provisions of the Partnership has the power to effect the more than 50% of the units then Unit Designation of the Preferred acquisition, sale, transfer, outstanding is necessary to amend OP Units that materially and exchange or other disposition of your partnership's agreement of adversely affects the rights or any assets of the AIMCO Operating limited partnership with the preferences of the holders of the Partnership (including, but not approval of the general partner, Preferred OP Units. The creation or limited to, the exercise or grant subject to certain exceptions; issuance of any class or series of of any conversion, option, remove or elect a general partner partnership units, including, privilege or subscription right or and approve or disapprove the sale without limitation, any partner- any other right available in of all or a material portion of ship units that may have rights connection with any assets at any your partnership's property. Such senior or superior to the Preferred time held by the AIMCO Operating vote is also necessary to approve OP Units, shall not be deemed to Partnership) or the merger, transactions other than the materially adversely affect the consolidation, reorganization or decrease, increase or refinancing rights or preferences of the other combination of the AIMCO of any mortgage which may result in holders of Preferred OP Units. With Operating Partnership with or into proceeds which do not constitute respect to the exercise of the another entity, all without the Cash Flow. above described voting rights, each consent of the OP Unitholders. Preferred OP Units shall have one A general partner may cause the (1) vote per Preferred OP Unit. The general partner may cause the dissolution of your partnership by dissolution of the AIMCO Operating retiring. Your partnership may then Partnership by an "event of be continued by the remaining withdrawal," as defined in the general partner in its sole dis- Delaware Limited Partnership Act cretion or if no general partner (including, without limitation, remains or the remaining general bankruptcy), unless, within 90 days partner does not elect to continue after the withdrawal, holders of a your partnership, the limited "majority in interest," as defined partners may elect to continue your in the Delaware Limited Partnership partnership's business by selecting Act, agree in writing, in their a substitute general partner by sole and absolute discretion, to unanimous consent within ninety continue the business of the AIMCO days after the retirement. 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 Flow 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 as de- and from time to time on or after in its sole and absolute discretion termined by the general partners, the fifth anniversary of the issue determine, of Available Cash (as and in any event will be made date of the Preferred OP Units, the defined in the AIMCO Operating within sixty days after the close AIMCO Operating Partnership may Partnership Agreement) generated by 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 refinanc- U.S. Treasury notes with a maturity OP Units on the record date ing proceeds available from the of five years, and (ii) the annual established by the general partner disposition of your partnership's dividend rate on the most recently with respect to such quarter, in assets. Your partnership has not issued AIMCO non-convertible accordance with their respective made distributions in the past and preferred stock which ranks on a interests in the AIMCO Operating is not projected to made parity with its Class H Cumu- Partnership on such record date. distributions in 1998. Holders of any other Pre-
S-67 2727 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 who is not a Preferred OP Units and the OP Units. The AIMCO Operating Part- minor, except in limited Preferred OP Units are not listed nership Agreement restricts the circumstances, or an incompetent on any securities exchange. The transferability of the OP Units. and such person will become a Preferred OP Units are subject to Until the expiration of one year substitute limited partner if: (1) restrictions on transfer as set from the date on which an OP such transfer complies with forth in the AIMCO Operating Unitholder acquired OP Units, applicable securities laws, (2) a Partnership Agreement. subject to certain exceptions, such written assignment has been duly OP Unitholder may not transfer all executed and acknowledged by the Pursuant to the AIMCO Operating or any portion of its OP Units to assignor and assignee, (3) the Partnership Agreement, until the any transferee without the consent approval of the general partner expiration of one year from the of the general partner, which which may be withheld in the sole date on which a holder of Preferred consent may be withheld in its sole and absolute discretion of the OP Units acquired Preferred OP and absolute discretion. After the general partner has been granted, Units, subject to certain expiration of one year, such OP (4) the transfer, when added to all exceptions, such holder of Unitholder has the right to other assignments within the Preferred OP Units may not transfer transfer all or any portion of its preceding twelve months ending on all or any portion of its Pre- OP Units to any person, subject to the date of the proposed assign- ferred OP Units to any transferee the satisfaction of certain ment would not result in the without the consent of the general conditions specified in the AIMCO termination of your partnership partner, which consent may be Operating Partnership Agreement, under the tax code and (5) the withheld in its sole and absolute including the general partner's assignor and assignee have com- discretion. After the expiration of right of first refusal. See plied with such other conditions as one year, such holders of Preferred "Description of OP Units -- set forth in 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. OP Units to
S-68 2728 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS There are no redemption rights any person, subject to the After the first anniversary of associated with your units. 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 general partner may, in its redemption, (ii) a number of shares sole and absolute discretion but of Class I Cumulative Preferred subject to the restrictions on the Stock of AIMCO that pay an ownership of Class A Common Stock aggregate amount of dividends yield imposed under the AIMCO's charter equivalent to the distributions on and the transfer restrictions and the Preferred OP Units tendered for other limitations thereof, elect to redemption and are part of a class cause AIMCO to acquire some or all or series of preferred stock that of the tendered Common OP Units in is then listed on the New York exchange for Class A Common Stock, Stock Exchange or another national based on an exchange ratio of one securities exchange, or (iii) a share of Class A Common Stock for number of shares of Class A Common each Common OP Unit, subject to Stock of AIMCO that is equal in adjustment as provided in the AIMCO Value to the Liquidation Preference Operating Partnership Agreement. of the Preferred OP Units tendered 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-69 2729 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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 consideration 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $60,000 in 1986, increasing annually at a rate of 6% and 20% of Cash Flow for any year in which Cash Flow exceeds the forecasted amount for such year and may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $203,451 in 1996, $196,956 in 1997 and $169,162 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's 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'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 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-70 2730 YOUR PARTNERSHIP GENERAL Park Towne Place Associates Limited Partnership is a Delaware limited partnership which raised net proceeds of approximately $38,000,000 in 1986 through a private offering. The promoter for the private offering of your partnership was Winthrop Securities Co., Inc. Insignia acquired your partnership in November 1997. AIMCO acquired Insignia in October, 1998. There are currently a total of 446 limited partners of your partnership and a total of 380 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 18, 1985 for the purpose of owning and operating a single apartment property located in Philadelphia, Pennsylvania, known as "Park Towne Apartments." Your partnership's property consists of 973 apartment units. The total rentable square footage of your partnership's property is 788,841 square feet. The average annual rent per apartment unit is approximately $10,245. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1997, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $203,451, $196,956 and $169,162, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2035 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement S-71 2731 of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $38,082,898, payable to First Union and La Salle, which bears interest at a rate of 9.13%. The mortgage debt is due in November 2006. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. S-72 2732 SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. Below is selected financial information for Park Towne Place Associates Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, -------------------------- ------------------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 BALANCE SHEET DATA ------------ ----------- ------------ ------------ ------------ ------------ ------------ Cash and Cash Equivalents............. $ 1,284,012 Not $ 1,099,004 $ 1,446,258 $ 751,562 $ 253,549 $ 719,460 Land & Building........... 60,255,561 Available 59,898,899 58,839,159 55,820,226 55,101,665 54,428,778 Accumulated Depreciation............ (29,664,402) 0 (28,372,105) (25,787,510) (23,335,722) (20,892,248) (18,523,746) Other Assets.............. 3,069,013 0 3,169,383 3,176,718 1,273,759 1,184,308 1,216,308 ------------ ----------- ------------ ------------ ------------ ------------ ------------ Total Assets...... $ 34,944,184 $ 0 $ 35,795,181 $ 37,674,625 $ 34,509,825 $ 35,647,274 $ 37,840,800 ============ =========== ============ ============ ============ ============ ============ Mortgage & Accrued Interest................ 38,730,410 38,513,760 38,772,117 33,671,066 33,689,089 33,885,216 Other Liabilities......... 655,683 1,517,750 1,428,432 1,549,151 1,587,369 781,237 ------------ ----------- ------------ ------------ ------------ ------------ ------------ Total Liabilities..... $ 39,386,093 $ 0 $ 40,031,510 $ 40,200,549 $ 35,220,217 $ 35,276,458 $ 34,666,453 ------------ ----------- ------------ ------------ ------------ ------------ ------------ Partners Capital (Deficit)............... $ (4,441,909) $ 0 $ (4,236,329) $ (2,525,924) $ (710,392) $ 370,816 $ 3,174,347 ============ =========== ============ ============ ============ ============ ============
PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP ---------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------ ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 STATEMENT OF OPERATIONS DATA ---------- ----------- ----------- ----------- ----------- ----------- ----------- Rental Revenue................... $5,368,063 $10,456,384 $ $ 9,958,898 $ 9,885,828 $ 9,655,896 $ 9,908,226 Other Income..................... 260,198 402,773 296,545 378,029 315,621 394,663 ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue............ $5,628,261 $10,859,157 $ 0 $10,255,443 $10,263,857 $ 9,971,517 $10,302,889 ---------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Expenses............... 2,081,780 4,967,094 0 4,409,260 4,056,726 4,810,719 4,373,673 General & Administrative......... 179,869 268,967 251,048 275,629 348,874 379,574 Depreciation..................... 1,292,298 2,584,595 2,451,788 2,443,474 2,417,434 2,406,024 Interest Expense................. 1,739,270 3,500,628 3,710,129 3,313,671 3,927,253 4,161,209 Property Taxes................... 540,624 1,248,278 1,248,750 1,255,565 1,270,768 1,285,376 ---------- ----------- ----------- ----------- ----------- ----------- ----------- Total Expenses........... $5,833,841 $12,569,562 $ 0 $12,070,975 $11,345,065 $12,775,048 $12,605,856 ---------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income............... $ (205,580) $(1,710,405) $ 0 $(1,815,532) $(1,081,208) $(2,803,531) $(2,302,967) ========== =========== =========== =========== =========== =========== ===========
S-73 2733 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Due to this partnership being a recent acquisition, very little discussion is available for variances. Results of Operations Six Months Ended June 30, 1998 Due to this partnership being a recent acquisition, no data was available for the six months ended June 30, 1997. Net Income Your partnership recognized a net loss of $205,580 for the six months ended June 30, 1998. Revenues Rental and other property revenues from the partnership's property totaled $5,628,261 for the six months ended June 30, 1998. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $2,081,780 for the six months ended June 30, 1998. Management expenses totaled $169,162 for the six months ended June 30, 1998. General and Administrative Expenses General and administrative expenses totaled $179,869 for the six months ended June 30, 1998. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,739,270 for the six months ended June 30, 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $1,710,405 for the year ended December 31, 1997, compared to a net loss of $1,815,532 for the year ended December 31, 1996, an increase in net income of $105,127. This is primarily due to an increase in revenues greater than an increase in expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $10,859,157 for the year ended December 31, 1997, compared to $10,255,443 for the year ended December 31, 1996, an increase of $603,714, or 5.89%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $4,967,094 for the year ended December 31, 1997, compared to $4,409,260 for the year ended December 31, S-74 2734 1996, an increase of $557,834 or 12.65%. Management expenses totaled $196,956 for the year ended December 31, 1997, compared to $203,451 for the year ended December 31, 1996, a decrease of $6,495, or 3.19%. General and Administrative Expenses General and administrative expenses totaled $268,967 for the year ended December 31, 1997 compared to $251,048 for the year ended December 31, 1996, an increase of $17,919 or 7.14%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $3,500,628 for the year ended December 31, 1997, compared to $3,710,129 for the year ended December 31, 1996, a decrease of $209,501, or 5.65%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $1,815,532 for the year ended December 31, 1996, compared to a net loss of $1,081,208 for the year ended December 31, 1995, an increase in net income of $734,324. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $10,255,443 for the year ended December 31, 1996, compared to $10,263,857 for the year ended December 31, 1995, a decrease of $8,414, or 0.08%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $4,409,260 for the year ended December 31, 1996, compared to $4,056,726 for the year ended December 31, 1995, an increase of $352,534 or 8.69%. Management expenses totaled $203,451 for the year ended December 31, 1996, compared to $202,870 for the year ended December 31, 1995, an increase of $581, or 0.29%. General and Administrative Expenses General and administrative expenses totaled $251,048 for the year ended December 31, 1996 compared to $275,629 for the year ended December 31, 1995, a decrease of $24,581 or 8.92%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $3,710,129 for the year ended December 31, 1996, compared to $3,313,671 for the year ended December 31, 1995, an increase of $396,458, or 11.96%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $1,284,012 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-75 2735 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 will not incur any liability, responsibility or accountability for damages or otherwise to your partnership or any limited partner arising out of any acts performed or any omission by any of them if they believed in good faith that such act or omission 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 the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is owned by AIMCO. See "Conflicts of Interest". Your partnership will, to the extent permitted by law, indemnify and save harmless the general partner and its affiliates against and from any loss, liability, cost or expenses (including reasonable attorneys' fees) or damage sustained by them in connection with your partnership provided that such loss, liability, cost or expense or damage was not the result of negligence or misconduct on the part of the general partners or such persons. The general partner, its affiliates and any placing broker will not be indemnified for liabilities arising under Federal and state securities laws unless (1) there has been a successful adjudication on the merits of each count involving 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 settlement of the claims. In such claim for indemnification for Federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect o the issue of indemnification for securities law violations. Such indemnity will be paid from, and only to the extent of, partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. Your partnership will not incur the cost of the portion of any insurance which insures any party against any liability as to which such party is herein prohibited from being indemnified. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions Your partnership has not made a distribution within the last five years. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions S-76 2736 (excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0 0 1995......................... 0 0 0 1996......................... 0 0 0 1997......................... 3 0.79% 5 1998 (through June 30)....... 0 0 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $190,405 1995........................................................ 95,634 1996........................................................ 95,634 1997........................................................ 86,251 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................................ $202,870 1996........................................................ 203,451 1997........................................................ 196,956 1998 (through June 30)...................................... 169,162
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-77 2737 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Park Towne Place Associates Limited Partnership at December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by Reznick Fedder & Silverman, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-78 2738 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statement of Operations for the six months ended June 30, 1998 (unaudited)................................. F-3 Condensed Statement of Cash Flows for the six months ended June 30, 1998 (unaudited)................................. F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-8 Balance Sheets as of December 31, 1997 and 1996............. F-9 Statements of Operations for the years ended December 31, 1997 and 1996............................................. F-10 Statements of Partners' Capital for the years ended December 31, 1997 and 1996......................................... F-11 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-12 Notes to Financial Statements............................... F-13 Independent Auditors' Report................................ F-18 Balance Sheets as of December 31, 1996 and 1995............. F-19 Statements of Operations for the years ended December 31, 1996 and 1995............................................. F-20 Statements of Partners' Capital for the years ended December 31, 1996 and 1995......................................... F-21 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-22 Notes to Financial Statements............................... F-23
F-1 2739 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 1,284,012 Restricted Escrows.......................................... 1,575,176 Syndication Fees............................................ -- Other Assets................................................ 1,493,838 Investment Property: Land...................................................... $ 2,000,000 Building and related personal property.................... 58,255,560 ------------ 60,255,560 Less: Accumulated depreciation............................ (29,664,402) 30,591,158 ------------ ----------- Total Assets...................................... $34,944,184 =========== LIABILITIES AND PARTNERS' CAPITAL A/P and Other Accrued Liabilities........................... $ 858,694 Property taxes payable...................................... -- Tenant security deposits.................................... 444,501 Notes Payable............................................... 38,082,898 Partners' Capital........................................... (4,441,909) ----------- Total Liabilities and Partners' Capital........... $34,944,184 ===========
F-2 2740 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Revenues: Rental Income............................................. $5,368,063 Other Income.............................................. 260,198 (Gain) Loss on Disp of Property........................... -- Casualty Gain/Loss........................................ -- ---------- Total Revenues.................................... 5,628,261 Expenses: Operating Expenses........................................ 2,081,780 General and Administrative Expenses....................... 179,869 Depreciation Expense...................................... 1,292,298 Interest Expense.......................................... 1,739,270 Property Tax Expense...................................... 540,624 ---------- Total Expenses.................................... $5,833,841 Net Loss.......................................... $ (205,580) ==========
F-3 2741 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Operating Activities: Net Income (loss)......................................... $ (205,580) Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 1,292,298 Changes in accounts: Receivables and deposits and other assets............ (279,493) Accounts Payable and accrued expenses............. (647,038) ---------- Net cash provided by (used in) operating activities........................................ 160,187 ---------- Investing Activities: Property improvements and replacements.................... (356,662) Net (increase)/decrease in restricted escrows............. 519,740 ---------- Net cash provided by (used in) investing activities........................................ 163,078 ---------- Financing Activities: Payments on mortgage...................................... (138,257) ---------- Net cash provided by (used in) financing activities........................................ (138,257) ---------- Net increase (decrease) in cash and cash equivalents....................................... 185,008 Cash and cash equivalents at beginning of year.............. 1,099,004 ---------- Cash and cash equivalents at end of period.................. $1,284,012 ==========
F-4 2742 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Park Towne Place Associates Limited Partnership as of June 30, 1998 and for the six months ended June 30, 1998 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 2743 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 1997 AND 1996 F-6 2744 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-8 Financial Statements Balance Sheets............................................ F-9 Statements of Operations.................................. F-10 Statements of Partners' Capital........................... F-11 Statements of Cash Flows.................................. F-12 Notes to Financial Statements............................. F-13
F-7 2745 INDEPENDENT AUDITORS' REPORT To the Partners of Park Towne Place Associates Limited Partnership We have audited the accompanying balance sheets of Park Towne Place Associates Limited Partnership as of December 31, 1997 and 1996, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Park Towne Place Associates Limited Partnership as of December 31, 1997 and 1996, and the results of its operations, changes in partners' capital and cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDERS & SILVERMAN Bethesda, Maryland February 18, 1998 F-8 2746 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, ASSETS
1997 1996 ----------- ----------- Investment in real estate Land...................................................... $ 2,000,000 $ 2,000,000 Building and building improvements........................ 54,262,367 52,102,912 Personal property 3,636,532 4,736,247 ----------- ----------- 59,898,899 58,839,159 Less: accumulated depreciation............................ 28,372,105 25,787,510 ----------- ----------- 31,526,794 33,051,649 Cash and cash equivalents................................... 750,559 1,210,238 Tenant security deposits -- funded.......................... 348,445 236,020 Mortgage escrow deposits.................................... 1,240,346 898,273 Replacement reserves........................................ 854,570 1,047,124 Prepaid expenses and other assets........................... 189,383 245,084 Deferred costs, net of accumulated amortization of $126,441 in 1997 and $25,288 in 1996............................... 885,084 986,237 ----------- ----------- Total assets......................................... $35,795,181 $37,674,625 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities applicable to investment in real property Mortgage payable.......................................... $38,221,155 $38,479,512 Other liabilities Accounts payable and accrued expenses..................... 856,255 836,951 Loans payable -- affiliates............................... 356,872 356,872 Accrued interest -- mortgage.............................. 292,605 292,605 Tenants security deposits................................. 304,623 234,609 ----------- ----------- Total liabilities.................................... 40,031,510 40,200,549 Partners' capital........................................... (4,236,329) (2,525,924) ----------- ----------- Total liabilities and partners' capital.............. $35,795,181 $37,674,625 =========== ===========
See notes to financial statements F-9 2747 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31,
1997 1996 ----------- ----------- Income Rental.................................................... $10,456,384 $ 9,958,898 Interest income........................................... 47,002 31,324 Other income.............................................. 355,771 265,221 ----------- ----------- Total income......................................... 10,859,157 10,255,443 ----------- ----------- Expenses Leasing................................................... 412,843 338,424 General and administrative................................ 268,967 251,048 Management fees........................................... 339,661 305,176 Utilities................................................. 1,384,814 1,334,489 Repairs and maintenance................................... 1,774,431 1,613,779 Ground rent............................................... -- 198,750 Insurance................................................. 285,292 314,858 Taxes..................................................... 1,248,278 1,248,750 ----------- ----------- Total operating expenses............................. 5,714,286 5,605,274 Other expenses Depreciation.............................................. 2,584,595 2,451,788 Amortization.............................................. 101,153 25,288 Interest expense.......................................... 3,500,628 3,710,129 Other expenses............................................ 668,900 278,496 ----------- ----------- Total other expenses................................. 12,569,562 12,070,975 ----------- ----------- Net loss.................................................... $(1,710,405) $(1,815,532) =========== =========== Net loss allocated to Winthrop Financial Associates......... $ (68,416) $ (86,237) =========== =========== Net loss allocated to Investor Limited Partners............. $(1,624,885) $(1,724,756) =========== =========== Net loss allocated to PTP Properties, Inc................... $ (17,104) $ (4,539) =========== =========== Net loss per unit outstanding -- Investor L.P............... $ (4,272) $ (4,539) =========== ===========
See notes to financial statements F-10 2748 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1997 AND 1996
WINTHROP INVESTOR PTP FINANCIAL LIMITED PROPERTIES, ASSOCIATES PARTNERS INC. TOTAL ----------- ----------- ----------- ----------- Balance, December 31, 1995............. $(2,363,966) $ 1,653,574 $ -- $ (710,392) Transfer of interest................... 486,409 -- (486,409) -- Net loss............................. (86,237) (1,724,756) (4,539) (1,815,532) ----------- ----------- --------- ----------- Balance, December 31, 1996............. (1,963,794) (71,182) (490,948) (2,525,924) Net loss............................. (68,416) (1,624,885) (17,104) (1,710,405) ----------- ----------- --------- ----------- Balance, December 31, 1997............. $(2,032,210) $(1,696,067) $(508,052) $(4,236,329) =========== =========== ========= ===========
See notes to financial statements F-11 2749 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31,
1997 1996 ----------- ------------ Cash flows from operating activities Net loss.................................................. $(1,710,405) $ (1,815,532) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization.......................... 2,685,748 2,477,076 (Increase) decrease in tenant security deposits -- funded................................... (112,425) 8,501 (Increase) decrease in mortgage escrow deposits........ (342,073) 36,264 Increase in deferred costs............................. -- (1,011,525) Increase in accrued interest -- mortgage............... -- 15,372 Decrease in prepaid expenses and other assets.......... 55,701 94,138 Increase (decrease) in accounts payable and accrued expenses............................................. 19,304 (44,626) Increase in tenant security deposits................... 70,014 39,035 ----------- ------------ Net cash provided by (used in) operating activities........................................ 665,864 (201,297) ----------- ------------ Cash flows from investing activities Investment in land........................................ -- (2,000,000) Investment in rental property............................. (1,059,740) (1,018,933) Decrease (increase) in reserve for replacements........... 192,554 (1,047,124) ----------- ------------ Net cash used in investing activities................ (867,186) (4,066,057) ----------- ------------ Cash flows from financing activities Principal payments on mortgage............................ (258,357) (33,414,321) Proceeds from mortgage.................................... -- 38,500,000 Increase in loans payable -- affiliates................... -- 356,872 Payments on loans payable -- affiliates................... -- (472,000) ----------- ------------ Net cash (used in) provided by financing activities........................................ (258,357) 4,970,551 ----------- ------------ Net (Decrease) Increase in Cash and Cash Equivalents....................................... (459,679) 703,197 Cash and cash equivalents, beginning........................ 1,210,238 507,041 ----------- ------------ Cash and cash equivalents, end.............................. $ 750,559 $ 1,210,238 =========== ============ Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 3,500,628 $ 3,694,757 =========== ============
See notes to financial statements F-12 2750 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Park Towne Place Associates Limited Partnership, a Delaware limited partnership, was formed in November 1985 to acquire, renovate and operate a four-building apartment complex known as Park Towne Place (the "Property"). The Property consists of 969 apartment units and recreational and retail facilities situated on approximately 8.95 acres of land. The Partnership will terminate on December 31, 2035, or earlier upon the occurrence of certain events specified in the partnership agreement. The general partner of the Partnership is Winthrop Financial Associates, A Limited Partnership, a Maryland Limited Partnership ("WFA"). The initial limited partner of the Partnership was Three Winthrop Properties, Inc. Upon admission of the Investors to the Partnership, profits, losses and cash flow from normal operations were allocated 5% to WFA and 95% to the investor limited partners. The partnership sold 380 limited partnership units. Effective September 30, 1996, WFA withdrew from the Partnership as the general partner and assigned 1% of 5% interest to the new general partner, PTP Properties, Inc. WFA retained its remaining 4% interest which was converted to a limited partnership interest but is not considered an investor limited partner. Profits, losses and distributions of the partnership are allocated 1% to the general partner, 4% to WFA and 95% to the investor limited partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Rental Property Rental property is carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives by use of the straight-line method for financial reporting purposes. For income tax purposes, accelerated lives and methods are used. Deferred Costs Mortgage costs are amortized over the term of the mortgage loan using the straight-line method. Rental Income Rental income is recognized as rents become due. Rents received in advance are deferred until earned. All leases between the Partnership and tenants of the property are operating leases. Income Taxes No provision has been made for federal, state or local income taxes in the financial statements of the Partnership. The Partners are required to report on their individual income tax returns their allocable share of income, gains, losses, deductions and credits of the Partnership. The Partnership files its own tax return on the accrual basis. F-13 2751 PARK TOWN PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents For purposes of the statement of cash flows, the Partnership considers all highly liquid investments consisting of a money market fund to be cash equivalents. NOTE B -- MORTGAGE PAYABLE On October 2, 1996, the Partnership refinanced its mortgage through GMAC Commercial Mortgage Corporation. The new mortgage, which had an original balance of $38,500,000, is secured by a deed of trust on the rental property and an assignment of property leases and rents, and is guaranteed by an affiliate of the general partner. The note bears interest at 9.125% per annum. Principal and interest are payable by the partnership in monthly installments of $313,249 through maturity on November 1, 2006, when all outstanding principal and accrued interest are due. Included in interest expense on the statements of operations for the year ended December 31, 1996 is $347,957 of a prepayment penalty paid to the old lender on refinancing its mortgage. Under agreements with the mortgage lender, the partnership is required to make monthly escrow deposits for taxes, insurance and replacement of project assets. The liability of the partnership under the mortgage note is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgage payable over each of the next five years are as follows:
DECEMBER 31, ------------ 1998............................................ $285,095 1999............................................ 312,226 2000............................................ 341,939 2001............................................ 374,479 2002............................................ 410,117
NOTE C -- INVESTMENT IN LAND The land on which the property was located was previously owned by 2200 Benjamin Franklin Parkway Associates Limited Partnership (the "fee owner"), and served as landlord under the ground lease. The general partner of the fee owner is Nine St. James Leasing Co., whose shareholders are affiliates of the general partner and WFA. On September 30, 1996, the partnership executed an option in their ground lease to purchase the land for $2,000,000 from the fee owner. The partnership financed a portion of the purchase through the refinancing as described in note B. The remaining balance due to the fee owner at December 31, 1997 and 1996 is $356,872. This amount is noninterest bearing and payable upon sale or refinancing of the property. NOTE D -- TAXABLE LOSS The Partnership's taxable loss for 1997 and 1996 differs from the net loss for financial reporting purposes primarily due to differences in the recognition of depreciation incurred by the Partnership and the recognition F-14 2752 PARK TOWN PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) of interest expense on the mortgage loan under the economic accrual method for tax purposes. The taxable losses for 1997 and 1996 are as follows:
1997 1996 ----------- ----------- Net loss for financial reporting purposes................. $(1,708,604) $(1,815,532) Accelerated depreciation on real and personal property.... (5,810) 14,787 Interest expense under the economic accrual method........ -- 485,838 Other..................................................... -- 20 ----------- ----------- Taxable loss.............................................. $(1,714,414) $(1,314,887) =========== ===========
NOTE E -- RELATED PARTY TRANSACTIONS The Partnership has incurred charges by and commitments to companies affiliated by common ownership and management with the general partner and WFA. Related party transactions with the general partner, WFA and its affiliates include the following: The Partnership incurred ground rent expense of $198,750 in 1996. The Partnership was managed by Winthrop Management (through October 27, 1997), an affiliate of the general partner and WFA, which received an annual property management fee equal to 2% of gross operating revenues for the properties. Fees of $196,956 and $203,451 were charged to operations for 1997 and 1996, respectively. On October 28, 1997, the partnership terminated Winthrop Management as the managing agent and appointed Insignia Residential Group, LP ("Insignia") as the new management agent. (See note G to the financial statements.) The current management agreement provides for a property management fee equal to 3% of the gross operating revenues generated by the properties. Fees of $54,931 were charged to operations for the year ended December 31, 1997. Management fees include $87,774 and $101,725 in 1997 and 1996, respectively, representing consulting management fees equal to 1% of gross collections, paid to an affiliate through October 27, 1997. An investor service fee of $77,359 and $95,634 in 1997 and 1996, respectively, was paid to an affiliate and is included in other expenses. In May of 1994 an affiliate of the general partner and WFA agreed to advance the Partnership $300,000 in a noninterest bearing revolving line of credit. During 1995, the affiliate advanced an additional $240,000, and the Partnership repaid $68,000 of the advances. During 1996, the outstanding balance of $472,000 was repaid with refinancing proceeds as more fully described in note B. Included in other expenses is $18,982 of asset management fees and $8,892 of general partner reimbursement charged to operations in 1997. The amounts are payable to an affiliate of the general partner starting in November 1997. At December 31, 1997, $27,874 remains payable. NOTE F -- CONCENTRATION OF CREDIT RISK The partnership maintains its cash balances in two banks. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000. As of December 31, 1997, the uninsured portion of the cash balance held in one of the banks was $248,445. NOTE G -- OTHER INFORMATION On October 28, 1997, Insignia Financial Group acquired 100% of the Class B Stock of First Winthrop Corporation, an affiliate of the general partner. F-15 2753 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 F-16 2754 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-18 Balance Sheets.............................................. F-19 Statements of Operations.................................... F-20 Statements of Partners' Capital............................. F-21 Statements of Cash Flows.................................... F-22 Notes to Financial Statements............................... F-23
F-17 2755 INDEPENDENT AUDITORS' REPORT To the Partners of Park Towne Place Associates Limited Partnership We have audited the accompanying balance sheets of Park Towne Place Associates Limited Partnership as of December 31, 1996 and 1995, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Park Towne Place Associates Limited Partnership as of December 31, 1996 and 1995, and the results of its operations, changes in partners' capital and cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDERS & SILVERMAN Bethesda, Maryland January 24, 1997 F-18 2756 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS
1996 1995 ----------- ----------- Investment in Real Estate Land...................................................... $ 2,000,000 $ -- Building and building improvements........................ 52,102,912 52,102,912 Personal property......................................... 4,736,247 3,717,314 ----------- ----------- 58,839,159 55,820,226 Less: accumulated depreciation............................ 25,787,510 23,335,722 ----------- ----------- 33,051,649 32,484,504 Cash and cash equivalents................................... 1,210,238 507,041 Tenant security deposits -- funded.......................... 236,020 244,521 Mortgage escrow deposits.................................... 898,273 934,537 Replacement reserves........................................ 1,047,124 -- Prepaid expenses and other assets........................... 245,084 339,222 Deferred costs, net of accumulated amortization of $25,288 in 1996................................................... 986,237 -- ----------- ----------- Total Assets......................................... $37,674,625 $34,509,825 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities applicable to investment in real property Mortgage payable.......................................... $38,479,512 $33,393,833 Other liabilities Accounts payable and accrued expenses..................... 836,951 881,577 Loans payable -- affiliates............................... 356,872 472,000 Accrued interest -- mortgage.............................. 292,605 277,233 Tenants security deposits................................. 234,609 195,574 ----------- ----------- Total Liabilities.................................... 40,200,549 35,220,217 Partners' Capital........................................... (2,525,924) (710,392) ----------- ----------- Total Liabilities and Partners' Capital..................... $37,674,625 $34,509,825 =========== ===========
See notes to financial statements F-19 2757 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ----------- ----------- Income Rental.................................................... $ 9,958,898 $ 9,885,828 Interest income........................................... 31,324 14,859 Other income.............................................. 265,221 363,170 ----------- ----------- Total Income......................................... 10,255,443 10,263,857 ----------- ----------- Expenses Leasing................................................... 338,424 312,607 General and administrative................................ 251,048 275,629 Management Fees........................................... 305,176 304,306 Utilities................................................. 1,334,489 1,020,416 Repairs and Maintenance................................... 1,613,779 1,589,236 Ground Rent............................................... 198,750 265,000 Insurance................................................. 314,858 299,283 Taxes..................................................... 1,248,750 1,255,565 ----------- ----------- Total Operating Expenses............................. 5,605,274 5,322,042 Other expenses Depreciation.............................................. 2,451,788 2,443,474 Amortization.............................................. 25,288 87,174 Interest expense.......................................... 3,710,129 3,313,671 Other expense............................................. 278,496 178,704 ----------- ----------- Total Other Expenses................................. 12,070,975 11,345,065 ----------- ----------- Net Loss.................................................... $(1,815,532) $(1,081,208) =========== =========== Net loss allocated to Winthrop Financial Associates......... $ (86,237) $ (54,060) =========== =========== Net loss allocated to Investor Limited Partners............. $(1,724,756) $(1,027,148) =========== =========== Net loss allocated to PTP Properties, Inc. ................. $ (4,539) $ -- =========== =========== Net loss per unit outstanding -- Investor L.P. ............. $ (4,539) $ (2,703) =========== ===========
See notes to financial statements F-20 2758 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1996 AND 1995
WINTHROP INVESTOR PTP FINANCIAL LIMITED PROPERTIES, ASSOCIATES PARTNERS INC. TOTAL ----------- ----------- ----------- ----------- Balance, December 31, 1994............. $(2,309,906) $ 2,680,722 $ -- $ 370,816 Net loss............................. (54,060) (1,027,148) -- (1,081,208) ----------- ----------- --------- ----------- Balance, December 31, 1995............. (2,363,966) 1,653,574 -- (710,392) Transfer of interest................... 486,409 -- (486,409) -- Net loss............................. (86,237) (1,724,756) (4,539) (1,815,532) ----------- ----------- --------- ----------- Balance, December 31, 1996............. $(1,963,794) $ (71,182) $(490,948) $(2,525,924) =========== =========== ========= ===========
See notes to financial statements F-21 2759 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ------------ ----------- Cash flows from operating activities Net loss.................................................. $ (1,815,532) $(1,081,208) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization.......................... 2,477,076 2,530,648 (Increase) decrease in tenant security deposits -- funded................................... 8,501 (110,596) Decrease in mortgage escrow deposits................... 36,264 3,246 Increase in deferred costs............................. (1,011,525) -- Increase in accrued interest -- mortgage............... 15,372 -- Decrease (increase) in prepaid expenses and other assets............................................... 94,138 (179,871) (Decrease) increase in accounts payable and accrued expenses............................................. (44,626) 3,051 Increase in tenant security deposits................... 39,035 63,964 ------------ ----------- Net cash provided by (used in) operating activities........................................ (201,297) 1,229,234 ------------ ----------- Cash flows from investing activities Investment in land........................................ (2,000,000) -- Investment in rental property............................. (1,018,933) (718,561) Increase in reserve for replacements...................... (1,047,124) -- ------------ ----------- Net cash used in investing activities................ (4,066,057) (718,561) ------------ ----------- Cash flows from financing activities Principal payments on mortgage............................ (33,414,321) (295,256) Proceeds from mortgage.................................... 38,500,000 -- Increase in loans payable -- affiliates................... 356,872 172,000 Payments on loans payable -- affiliates................... (472,000) -- ------------ ----------- Net cash provided by (used in) financing activities........................................ 4,970,551 (123,256) ------------ ----------- Net increase in cash and cash equivalents................... 703,197 387,417 Cash and cash equivalents, beginning........................ 507,041 119,624 ------------ ----------- Cash and cash equivalents, end.............................. $ 1,210,238 $ 507,041 ============ =========== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 3,694,757 $ 3,313,671 ============ ===========
See notes to financial statements F-22 2760 PARK TOWNE PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Park Towne Place Associates Limited Partnership, a Delaware limited partnership, was formed in November 1985 to acquire, renovate and operate a four-building apartment complex known as Park Towne Place (the "Property"). The Property consists of 969 apartment units and recreational and retail facilities situated on approximately 8.95 acres of land. The Partnership will terminate on December 31, 2035, or earlier upon the occurrence of certain events specified in the Partnership Agreement. The general partner of the Partnership is Winthrop Financial Associates, A Limited Partnership, a Maryland Limited Partnership ("WFA"). The initial limited partner of the Partnership was Three Winthrop Properties, Inc. Upon admission of the Investors to the Partnership, profits, losses and cash flow from normal operations were allocated 5% to WFA and 95% to the Investor Limited Partners. Effective September 30, 1996, WFA withdrew from the Partnership as the general partner and assigned 1% of 5% interest to the new general partner, PTP Properties, Inc. WFA retained its remaining 4% interest which was converted to a limited partnership interest but is not considered an investor limited partner. Profits, losses and distributions of the partnership are allocated 1% to the general partner, 4% to WFA and 95% to the investor limited partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Rental Property Rental property is carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives by use of the straight-line method for financial reporting purposes. For income tax purposes, accelerated lives and methods are used. Deferred Costs Mortgage costs are amortized over the term of the mortgage loan using the straight line method. Rental Income Rental income is recognized as rents become due. Rents received in advance are deferred until earned. All leases between the Partnership and tenants of the property are operating leases. Income Taxes No provision has been made for Federal, state or local income taxes in the financial statements of the Partnership. The Partners are required to report on their individual income tax returns their allocable share of income, gains, losses, deductions and credits of the Partnership. The Partnership files its own tax return on the accrual basis. F-23 2761 PARK TOWN PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents For purposes of the statement of cash flows, the Partnership considers all highly liquid investments consisting of a money market fund to be cash equivalents. The carrying amount of $1,200,015 approximates fair value because of the short maturity of this instrument. NOTE B -- MORTGAGE PAYABLE On October 2, 1996, the Partnership refinanced its mortgage through GMAC Commercial Mortgage Corporation. The new mortgage, which had an original balance of $38,500,000, is secured by a deed of trust on the rental property and an assignment of property leases and rents, and is guaranteed by an affiliate of the general partner. The note bears interest at 9.125% per annum. Principal and interest are payable by the partnership in monthly installments of $313,249 through maturity on November 1, 2006, when all outstanding principal and accrued interest are due. Included in interest expense on the statements of operations for the year ended December 31, 1996 is $347,957 of a prepayment penalty paid to the old lender on refinancing its mortgage. Under agreements with the mortgage lender, the partnership is required to make monthly escrow deposits for taxes, insurance and replacement of project assets. The liability of the partnership under the mortgage note is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgage payable over each of the next five years are as follows:
DECEMBER 31, ------------ 1997......................................... $260,321 1998......................................... 285,095 1999......................................... 312,226 2000......................................... 341,939 2001......................................... 374,479
NOTE C -- INVESTMENT IN LAND The land on which the property was located was previously owned by 2200 Benjamin Franklin Parkway Associates Limited Partnership (the "Fee Owner"), and served as landlord under the ground lease. The general partner of the Fee Owner is Nine St. James Leasing Co., whose shareholders are affiliates of the general partner and WFA. On September 30, 1996, the partnership executed an option in their ground lease to purchase the land for $2,000,000 from the fee owner. The partnership financed a portion of the purchase through the refinancing as described in Note B. The remaining balance due to the Fee Owner at December 31, 1996 is $356,872. This amount is noninterest bearing and payable upon sale or refinancing of the property. NOTE D -- TAXABLE LOSS The Partnership's taxable loss for 1996 and 1995 differs from the net loss for financial reporting purposes primarily due to differences in the recognition of depreciation incurred by the Partnership and the recognition F-24 2762 PARK TOWN PLACE ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) of interest expense on the Mortgage Loan under the economic accrual method for tax purposes. The taxable losses for 1996 and 1995 are as follows:
1996 1995 ----------- ----------- Net loss for financial reporting purposes............. $(1,815,532) $(1,081,208) Accelerated depreciation on real and personal property............................................ 14,787 126,950 Interest expense under the economic accrual method.... 485,838 131,950 Other................................................. 20 (18,000) ----------- ----------- Taxable loss.......................................... $(1,314,887) $ (840,308) =========== ===========
NOTE E -- RELATED PARTY TRANSACTIONS The Partnership has incurred charges by and commitments to companies affiliated by common ownership and management with the general partner and WFA. Related party transactions with the general partner, WFA and its affiliates include the following: The Partnership incurred ground rent expense of $198,750 in 1996 and $265,000 in 1995. Management fees includes $101,725 and $101,436 in 1996 and 1995, respectively, representing Consulting Management fees equal to 1% of gross collections, paid to an affiliate. An Investor Service Fee of $95,634 in 1996 and 1995 was paid to an affiliate and is included in other expenses. On March 1, 1989, an affiliate took over the on-site management of the property. Management fees include $203,451 and $202,870 in 1996 and 1995, respectively, representing property management fees, equal to 2% of gross collections, paid to the affiliate. In May of 1994 an affiliate of the general partner and WFA agreed to advance the Partnership $300,000 in a noninterest bearing revolving line of credit. During 1995, the affiliate advanced an additional $240,000, and the Partnership repaid $68,000 of the advances. During 1996, the outstanding balance of $472,000 was repaid with refinancing proceeds as more fully described in note B. NOTE F -- CONCENTRATION OF CREDIT RISK The partnership maintains its cash balances in two banks. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000. As of December 31, 1996, the uninsured portion of the cash balance held in one of the banks was $4,991. F-25 2763 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 2764 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 2765 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 September , 1998 A-3 2766 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF QUAIL RUN 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. WE HAVE RETAINED ROBERT EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY A. STANGER & CO., INC. TO CONDUCT AN MINIMUM NUMBER OF UNITS BEING TENDERED. ANALYSIS OF THE OFFER AND TO RENDER AN YOU WILL NOT PAY ANY FEES OR COMMISSIONS OPINION AS TO THE FAIRNESS TO YOU OF THE IF YOU TENDER YOUR UNITS. OFFER CONSIDERATION FROM A FINANCIAL POINT OUR OFFER WILL EXPIRE AT 5:00 P.M., DENVER, OF VIEW. OUR OFFER CONSIDERATION WILL COLORADO TIME, ON , 1998, UNLESS WE BE REDUCED FOR ANY DISTRIBUTIONS EXTEND THE DEADLINE. SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 2767 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-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 Quail Run Associates, 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-29 Expected Benefits of the Offer............... S-30 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-35 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-36 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 2768
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership............. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 2769 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 Quail Run Associates, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). S-1 2770 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. - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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
S-2 2771 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. - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 $80.72 per unit for 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 distributions of $ 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 apartment property to holding an interest in an operating business S-3 2772 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. 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2773 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 100% of 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? 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: 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 2774 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 2775 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. 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. 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 5 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. 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 S-7 2776 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. 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. Although your partnership did not make any distributions in 1998, it might make distributions in the future. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 2777 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 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 S-9 2778 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 2779 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, 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. 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 S-11 2780 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 has required funding from its partners. Continuation of its operations is dependent on additional funding from partners or from other sources. 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 S-12 2781 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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). Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 2782 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 2783 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 also pay all costs and expenses of printing and mailing this Prospectus Supplement 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 S-15 2784 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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. S-16 2785 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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 Consideration 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-1 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 2786 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 is not subject to such limitations. 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 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 generated in that capacity. The property manager received management fees of $65,350 in 1996, $69,823 in 1997 and $36,150 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 Your Partnership and its Property. Quail Run Associates, L.P. is a Delaware limited partnership which was formed on May 28, 1984 for the purpose of owning and operating a single apartment property located in S-18 2787 Zionsville, Indiana, known as "Quail Run Apartments". In 1979, it completed a private placement of units that raised net proceeds of approximately $3,300,000. Quail Run Apartments consists of 166 apartment units. Your partnership has no employees. Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2007, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $4,038,074, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due in October 2003. Your partnership also has a second mortgage note outstanding of $143,487, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2788 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 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 2789
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 2790 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 2791
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 2792 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 2793 SUMMARY FINANCIAL INFORMATION OF QUAIL RUN ASSOCIATES, L.P. The summary financial information of Quail Run Associates, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Quail Run Associates, L.P. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is derived from 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 of Your Partnership" included herein. See "Index to Financial Statements." QUAIL RUN ASSOCIATES, L.P.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues............... $ 720,226 $ 696,344 $ 1,408,880 $ 1,312,973 $ 1,252,296 $ 1,213,937 $ 1,144,883 Net Income/(Loss)............ 106,937 140,803 73,289 78,787 (8,263) (57,114) (276,272) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation... 2,263,174 2,197,210 2,273,430 2,230,763 2,204,420 2,108,266 2,242,430 Total Assets................. 2,679,228 2,621,467 2,628,931 2,625,527 2,625,285 2,580,239 2,649,766 Mortgage Notes Payable, including Accrued Interest................... 4,454,100 4,548,773 4,518,914 4,608,858 4,691,283 4,766,820 4,836,043 Partners' Capital/(Deficit).......... $(2,260,075) $(2,299,378) $(2,369,595) $(2,440,301) $(2,519,088) $(2,510,825) $(2,453,711)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $0
S-25 2794 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. 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 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 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, 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 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. S-26 2795 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 Code. 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 therefore 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 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. 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 S-27 2796 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 (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 an 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 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. 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. S-28 2797 Moody's Revision of AIMCO's Outlook of Ratings To Negative. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 2798 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 has required funding from its partners. Continuation of its operations is dependent on additional funding from partners or from other sources. 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. S-30 2799 - 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 Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Partnership Preferred Units. Your Partnership has not paid any distributions on your units since the inception of your partnership. - 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. Your Partnership has not paid any distributions on your units since the inception of your partnership. - 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 2800 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 and the expiration of the offer. See "Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. S-32 2801 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 2802 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. 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 S-34 2803 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." 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. 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. S-35 2804 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, (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 9:00 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 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, Denver, Colorado 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. S-36 2805 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-37 2806 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 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 S-38 2807 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 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 S-39 2808 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-40 2809 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. 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-41 2810 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-42 2811 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 payment. 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 OP Units and any such S-43 2812 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-44 2813 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-45 2814 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-46 2815 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-47 2816 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-48 2817 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-49 2818 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 2819 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-51 2820 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 2821 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from to this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 2822 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 2823 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 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, a third party expert, 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 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 year ended December 31, 1997 were $80.72. 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. 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 an exchange for each of your partnership's 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. S-55 2824 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 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-56 2825 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 Consideration.................................... $ 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. 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-57 2826 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-58 2827 performed a site inspection 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 September 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 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 property was 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 S-59 2828 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 2829 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Quail Run Apartments. 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 Available 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 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 purchase, hold, The purpose of the AIMCO Operating Partnership is to lease, manage and operate your partnership's property. conduct any business that may be lawfully conducted by Subject to restrictions contained in your partnership's a limited partnership organized pursuant to the agreement of limited partnership, your partnership may Delaware Revised Uniform Limited Partnership Act (as perform all acts necessary or appropriate in connection amended from time to time, or any successor to such therewith and reasonably related thereto, including statute) (the "Delaware Limited Partnership Act"), 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-61 2830 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 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. 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 contracts to be entered into with the funds or other assets to its subsidiaries or other general partner and its affiliates and the compensation persons in which it has an equity investment, and such to be paid under such contracts. In addition, the persons may borrow funds from the AIMCO Operating general partner may loan your partnership such Partnership, on terms and conditions established in the additional sums as the general partner deems sole and absolute discretion of the general partner. To appropriate and necessary for the conduct of your the extent consistent with the business purpose of the partnership's business. Such loans by the general AIMCO Operating Partnership and the permitted partner or its affiliates will be upon such terms and activities of the general partner, the AIMCO Operating for such maturities as the general partner deems Partnership may transfer assets to joint ventures, reasonable and will bear interest at a rate the greater limited liability companies, partnerships, of 2 1/2% over the base rate then being charged by corporations, business trusts or other business Third National Bank in Nashville, Nashville, Tennessee entities in which it is or thereby becomes a or the actual cost to such lender to borrow such funds participant upon such terms and subject to such and the terms thereof as to security and other charges conditions consistent with the AIMCO Operating Part- or fees will be at least as favorable to your nership Agreement and applicable law as the general partnership as those negotiated by unaffiliated lenders partner, in its sole and absolute discretion, believes on comparable loans for the same purpose in the same to be advisable. Except as expressly permitted by the locale. 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 in the ordinary course of business and restrictions on borrowings, and the general partner has in connection with certain loans specified in your full power and authority to borrow money on behalf of partnership's agreement of limited partnership, which the AIMCO Operating Partnership. The AIMCO Operating includes loans secured by your partnership's property. Partnership has credit agreements that restrict, among However, except for such loans specified in your part- other things, its ability to incur indebtedness. See nership's agreement of limited partnership, the limited "Risk Factors -- Risks of Significant Indebtedness" in partners owning 51% of the outstanding units must the accompanying Prospectus. approve the mortgaging of all or substantially all of the assets of your partnership and, in any case, the general partner may not incur any indebtedness pursuant to a non-recourse loan if the creditor will have or acquire, at any time, as a result of the making of the loan, any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
S-62 2831 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 the limited partners to have access to the with a statement of the purpose of such demand and at current list of the names and addresses of all limited such OP Unitholder's own expense, to obtain a current partner at the principal office of the general partner list of the name and last known business, residence or in Tennessee at all reasonable times. mailing address of the general partner and each other OP Unitholder.
Management Control The management and control of your partnership and its All management powers over the business and affairs of business and affairs rest exclusively with the general the AIMCO Operating Partnership are vested in AIMCO-GP, partner, which has all the rights and power which may Inc., which is the general partner. No OP Unitholder be possessed by the general partner pursuant to has any right to participate in or exercise control or applicable law or are necessary, advisable or management power over the business and affairs of the convenient to the discharge of its duties under your AIMCO Operating Partnership. The OP Unitholders have partnership's agreement of limited partnership. Subject the right to vote on certain matters described under to the limitations the forth in your partnership's "Comparison of Ownership of Your Units and AIMCO OP agreement of limited partnership, the general partner Units -- Voting Rights" below. The general partner may has the right, power and authority to exercise full and not be removed by the OP Unitholders with or without complete discretion in the management and control of cause. the business of your partnership. Limited partners may not take part in or interfere in any with the conduct In addition to the powers granted a general partner of or control of the business of your partnership and have a limited partnership under applicable law or that are no right or authority to act for or bind your granted to the general partner under any other partnership in any manner, except as otherwise provided provision of the AIMCO Operating Partnership Agreement, in your partnership's agreement of limited partnership. 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 to your partnership or any limited partner partner is not liable to the AIMCO Operating for any acts or failures to do any act performed by it Partnership for losses sustained, liabilities incurred in the absence of their willful malfeasance or gross or benefits not derived as a result of errors in negligence. Your partnership's agreement of limited judgment or mistakes of fact or law of any act or partnership does not provide for indemnification of the omission if the general partner acted in good faith. general partner by your partnership for any acts or The AIMCO Operating Partnership Agreement provides for omissions performed by them. indemnification of AIMCO, or any director or officer of AIMCO (in its capacity as the previous general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware 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
S-63 2832 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 the has exclusive management power over the business and general partner for cause upon a vote of the limited affairs of the AIMCO Operating Partnership. The general partners owning at least 51% of the outstanding units. partner may not be removed as general partner of the The general partner may resign with the approval of the AIMCO Operating Partnership by the OP Unitholders with limited partners owning at least 51% of the outstanding or without cause. Under the AIMCO Operating Partnership units upon the giving of notice to any remaining Agreement, the general partner may, in its sole general partner and the limited partners. All the discretion, prevent a transferee of an OP Unit from limited partners must approve the election of a becoming a substituted limited partner pursuant to the substitute or additional general partner. A limited AIMCO Operating Partnership Agreement. The general partner may not transfer his interests without the partner may exercise this right of approval to deter, written consent of the general partner which may be delay or hamper attempts by persons to acquire a withheld at the sole discretion of the general partner. 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 to add in the AIMCO Operating Partnership Agreement, whereby representations, duties or obligations of the general the general partner may, without the consent of the OP partner or its affiliates or surrender any right or Unitholders, amend the AIMCO Operating Partnership power granted to the general partner or their Agreement, amendments to the AIMCO Operating affiliates in your partnership's agreement of limited Partnership Agreement require the consent of the partnership for the benefit of the limited partners, to holders of a majority of the outstanding Common OP cure any ambiguity, to correct or supplement any Units, excluding AIMCO and certain other limited provision which may be inconsistent with any other exclusions (a "Majority in Interest"). Amendments to provision provided that the general partner receive an the AIMCO Operating Partnership Agreement may be opinion of counsel that such amendment does not proposed by the general partner or by holders of a adversely affect the rights of the limited partners and Majority in Interest. Following such proposal, the to admit additional or substituted limited partners. general partner will submit any proposed amendment to Any other amendments to your partnership's agreement of the OP Unitholders. The general partner will seek the limited partnership must be approved by the limited written consent of the OP Unitholders on the proposed partners owning 51% of the units. The general partner amendment or will call a meeting to vote thereon. See must submit a written statement of the proposed amend- "Description of OP Units -- Amendment of the AIMCO ment together with their recommendation as to such Operating Partnership Agreement" in the accompanying proposed amendment. For the purposes of obtaining the Prospectus. consent of the limited partners, the general partner may require responses within a specified time, which may not be less than 30 days, and failure to respond in such time will constitute a vote which is consistent with the general partner's recommendation with respect to such proposal.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to compensation for additional services nership is responsible for all expenses incurred rendered. 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-64 2833 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, except as provided under applicable law, a negligence, no OP Unitholder has personal liability for limited partner is not bound by or personally liable the AIMCO Operating Partnership's debts and for the expenses, liabilities or obligations of your obligations, and liability of the OP Unitholders for partnership in excess of such limited partners' capital the AIMCO Operating Partnership's debts and obligations contribution, including deferred payment to be made by is generally limited to the amount of their invest- such limited partner for its units, and any mandatory ment in the AIMCO Operating Partnership. However, the assessments provided for in your partnership's limitations on the liability of limited partners for agreement of limited partnership which may be levied the obligations of a limited partnership have not been against those limited partners who do not pay for clearly established in some states. If it were issued units entirely in cash. 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 manage and partnership agreement, Delaware law generally requires control your partnership, its business and affairs to a general partner of a Delaware limited partnership to the best of its abilities and must use its best efforts adhere to fiduciary duty standards under which it owes to carry out the business of your partnership. The its limited partners the highest duties of good faith, general partner must devote itself to the business of fairness and loyalty and which generally prohibit such your partnership to the extent that they, in their general partner from taking any action or engaging in discretion, deem necessary for the efficient carrying any transaction as to which it has a conflict of on thereof. The general partner must act as a fiduciary interest. The AIMCO Operating Partnership Agreement with respect to the safekeeping and use of the funds expressly authorizes the general partner to enter into, and assets of your partnership. However, the general on behalf of the AIMCO Operating Partnership, a right partner may engage in whatever activities it chooses, of first opportunity arrangement and other conflict whether or not the same be competitive with your avoidance agreements with various affiliates of the partnership, without having or incurring any obligation AIMCO Operating Partnership and the general partner, on to offer any interest in such activities to your such terms as the general partner, in its sole and partnership or any limited partner. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 2834 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, the vote of applicable law or in the AIMCO ship Agreement, the OP Unitholders the limited partners owning 51% of Operating Partnership Agreement, have voting rights only with the outstanding units is necessary the holders of the Preferred OP respect to certain limited matters to remove the general partner or Units will have the same voting such as certain amendments and any other general partner, ap- rights as holders of the Common OP termination of the AIMCO Operating prove the resignation of the Units. See "Description of OP Partnership Agreement and certain general partner, change the nature Units" in the accompanying transactions such as the of your partnership's business and Prospectus. So long as any institution of bankruptcy approve, amend your partnership's Preferred OP Units are outstand- proceedings, an assignment for the agreement of limited partnership 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 Partnership Agree- Part-
S-66 2835 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS your partnership. All limited ment, the affirmative vote or nership or the admission of a partners must approve the election consent of holders of at least 50% successor general partner. of a substitute or additional of the outstanding Preferred OP general partner. 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 the your partnership the provisions of the Partnership has the power to effect the by retiring. In such event, the Unit Designation of the Preferred acquisition, sale, transfer, business of your partnership may be OP Units that materially and exchange or other disposition of continued if, within ninety days, adversely affects the rights or any assets of the AIMCO Operating the limited partners holding at preferences of the holders of the Partnership (including, but not least 51% of the units elect a new Preferred OP Units. The creation or limited to, the exercise or grant general partner to continue the issuance of any class or series of of any conversion, option, business of your partnership, in partnership units, including, privilege or subscription right or reconstituted form if necessary. 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 the Available Cash $ per Preferred OP Unit; tribute quarterly all, or such Flow will be made in quarterly provided, however, that at any time portion as the general partner may installments within 45 days after and from time to time on or after in its sole and absolute discretion the end of such quarter or at such the fifth anniversary of the issue determine, of Available Cash (as time or times as the general date of the Preferred OP Units, the defined in the AIMCO Operating partner deems practical. The AIMCO Operating Partnership may Partnership Agreement) generated by 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. Your dividend rate on the most recently with respect to such quarter, in partnership has not made issued AIMCO non-convertible accordance with their respective distributions in the past and is preferred stock which ranks on a interests in the AIMCO Operating not projected to make distributions parity with its Class H Cumu- Partnership on such record date. in 1988. Holders of any other Pre-
S-67 2836 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 and such Preferred OP Units and the OP Units. The AIMCO Operating Part- transferee will become a Preferred OP Units are not listed nership Agreement restricts the substituted limited partner if: (1) on any securities exchange. The transferability of the OP Units. the transfer is not in respect of Preferred OP Units are subject to Until the expiration of one year fractional units, except in limited restrictions on transfer as set from the date on which an OP circumstances, (2) the assignor and forth in the AIMCO Operating Unitholder acquired OP Units, assignee execute, acknowledge and Partnership Agreement. subject to certain exceptions, such deliver instruments of transfer OP Unitholder may not transfer all satisfactory to the general Pursuant to the AIMCO Operating or any portion of its OP Units to partner, (3) the transferor pays Partnership Agreement, until the any transferee without the consent the transfer fee, (4) the general expiration of one year from the of the general partner, which partner consent, which consent will date on which a holder of Preferred consent may be withheld in its sole be withheld if, among other OP Units acquired Preferred OP and absolute discretion. After the reasons, the transfer violates Units, subject to certain expiration of one year, such OP Federal or state securities laws or exceptions, such holder of Unitholder has the right to results in the termination of your Preferred OP Units may not transfer transfer all or any portion of its partnership for tax purposes and all or any portion of its Pre- OP Units to any person, subject to (6) the assignor and assignee have ferred OP Units to any transferee the satisfaction of certain complied with such other conditions without the consent of the general conditions specified in the AIMCO as set forth in your partner- partner, which consent may be Operating Partnership Agreement, ship's agreement of limited withheld in its sole and absolute including the general partner's partnership. discretion. After the expiration of right of first refusal. See There are no redemption rights one year, such holders of Preferred "Description of OP Units -- associated with your 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
S-68 2837 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 2838 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 generated in that capacity from your partnership. The property manager received management fees of $65,350 in 1996, $69,823 in 1997 and $36,150 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's 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'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 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-70 2839 YOUR PARTNERSHIP GENERAL La Colina Partners, Ltd. is a Delaware limited partnership which raised net proceeds of approximately $3,300,000 in 1979 through a private offering. The promoter for the private offering of your partnership was Jacques-Miller. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 32 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 28, 1984 for the purpose of owning and operating a single apartment property located in Zionsville, Indiana, known as "Quail Run Apartments." Your partnership's property consists of 166 apartment units. The total rentable square footage of your partnership's property is 197,120 square feet. The average annual rent per apartment unit is approximately $8,021. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $65,350, $69,823 and $36,150, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2007 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 2840 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a first mortgage note outstanding of $4,038,074, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due in October 2003. There is a second mortgage with an outstanding balance of $143,487 as of June 30, 1998, and with substantially similar terms as the first. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 2841 Below is selected financial information for Quail Run Associates, L.P. taken from the financial statements described above. The 1994 and 1993 amounts have been derived from the audited financial statements which are not included in the Prospectus Supplement. See "Index to Financial Statements."
QUAIL RUN ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 97,503 $ 81,052 $ 29,913 $ 176,331 $ 129,592 $ 133,495 $ 43,569 Land & Building.............. 6,550,230 6,328,816 6,477,989 6,279,871 6,096,135 5,856,607 5,771,073 Accumulated Depreciation..... (4,287,057) (4,131,606) (4,204,559) (4,049,108) (3,891,715) (3,748,341) (3,528,643) Other Assets................. 318,551 343,205 325,588 285,313 291,273 338,478 363,767 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 2,679,227 $ 2,621,467 $ 2,628,931 $ 2,318,433 $ 2,625,285 $ 2,580,239 $ 2,649,766 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... $ 4,454,100 $ 4,548,773 $ 4,518,914 $ 4,608,858 $ 4,691,283 $ 4,766,820 $ 4,836,043 Other Liabilities............ 485,202 372,072 479,612 456,970 453,090 324,244 267,434 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 4,939,302 4,920,845 4,998,526 5,065,828 5,144,373 5,091,064 5,103,477 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $(2,260,075) $(2,299,378) $(2,369,595) $(2,440,301) $(2,519,088) $(2,510,825) $(2,453,711) =========== =========== =========== =========== =========== =========== ===========
QUAIL RUN ASSOCIATES, L.P. ------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue......................... $681,716 $660,288 $1,331,575 $1,244,131 $1,194,163 $1,164,439 $1,105,979 Other Income........................... 38,510 36,056 77,305 68,842 58,133 49,498 38,904 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Revenue................. $720,226 $696,344 $1,408,880 $1,312,973 $1,252,296 $1,213,937 $1,144,883 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Expenses..................... 277,115 261,510 566,038 525,788 530,582 462,253 474,816 General & Administrative............... 9,486 10,090 45,383 45,581 41,527 26,815 57,095 Depreciation........................... 82,498 82,498 164,995 157,393 143,374 219,698 346,893 Interest Expense....................... 188,749 165,070 432,170 439,242 445,698 452,809 458,015 Property Taxes......................... 55,441 36,373 127,005 66,182 99,378 109,475 84,336 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Expenses................ $613,289 $555,541 $1,335,591 $1,234,186 $1,260,559 $1,271,051 $1,421,155 -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss)............. $106,937 $140,803 $ 73,289 $ 78,787 $ (8,263) $ (57,114) $ (276,272) ======== ======== ========== ========== ========== ========== ==========
S-73 2842 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $106,938 for the six months ended June 30, 1998, compared to $140,804 for the six months ended June 30, 1997. The decrease in net income of $33,866, or 24.05% was primarily the result of increased revenues and lower property expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $720,226 for the six months ended June 30, 1998, compared to $696,344 for the six months ended June 30, 1997, an increase of $23,882, or 3.43%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $277,115 for the six months ended June 30, 1998, compared to $261,510 for the six months ended June 30, 1997, an increase of $15,605 or 5.97%. This increase was primarily the result of an increase in landscaping, marketing and repairs expenses. Management expenses totaled $36,150 for the six months ended June 30, 1998, compared to $34,560 for the six months ended June 30, 1997, an increase of $1,590, or 4.60%. General and Administrative Expenses General and administrative expenses totaled $9,486 for the six months ended June 30, 1998 compared to $10,090 for the six months ended June 30, 1997, a decrease of $604 or 5.99%. The decrease is primarily due to purchases of needed office supplies. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $188,749 for the six months ended June 30, 1998, compared to $165,070 for the six months ended June 30, 1997, a increase of $23,679, or 14.34%. The increase consists of interest on the third unsecured note on which payments began in 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $73,289 for the year ended December 31, 1997, compared to $78,787 for the year ended December 31, 1996. The decrease in net income of $5,498, or 6.98% was primarily the result of increased property improvement costs offset by increased rental revenue. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,408,880 for the year ended December 31, 1997, compared to $1,312,973 for the year ended December 31, 1996, an increase of $95,907, or 7.30%. This increase was primarily the result of an increase in occupancy. S-74 2843 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $566,038 for the year ended December 31, 1997, compared to $525,788 for the year ended December 31, 1996, an increase of $40,250 or 7.66%. This increase resulted primarily from exterior property improvements. Management expenses totaled $69,823 for the year ended December 31, 1997 of $4,473, or 6.84%. The increase resulted from an increase in rental revenues as management fees are calculated based on a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $45,383 for the year ended December 31, 1997 compared to $45,581 for the year ended December 31, 1996, a decrease of $198 or 0.43%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $432,170 for the year ended December 31, 1997, compared to $439,242 for the year ended December 31, 1996, a decrease of $7,072, or 1.61%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $78,787 for the year ended December 31, 1996 compared to a net loss of $8,263 for the year ended December 31, 1997. The increase was primarily the result of an increase in rental revenues due to increased occupancy and also a decrease in property improvement costs. Revenues Rental and other property revenues from the partnership's property totaled $1,312,973 for the year ended December 31, 1996, compared to $1,252,296 for the year ended December 31, 1995, an increase of $60,677, or 4.85%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $525,788 for the year ended December 31, 1996, compared to $530,582 for the year ended December 31, 1995, a decrease of $4,794 or 0.90%. Management expenses totaled $65,350 for the year ended December 31, 1996, compared to $61,659 for the year ended December 31, 1995, a increase of $3,691, or 5.99%. The increase resulted from increased revenue. General and Administrative Expenses General and administrative expenses totaled $45,581 for the year ended December 31, 1996 compared to $41,527 for the year ended December 31, 1995, an increase of $4,054 or 9.76%. The increase is primarily due to office supplies and equipment purchases. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $439,242 for the year ended December 31, 1996, compared to $445,698 for the year ended December 31, 1995, a decrease of $6,456, or 1.45%. S-75 2844 Interest Income Liquidity and Capital Resources As of June 30, 1998, your partnership had $97,503 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. The partnership had debt that has matured in June 1997 and due to Jacques Miller Income Fund II totalling $454,522. This amount remains unpaid and the partnership may either refinance or negotiate the purchase of this note. However, there can be no assurance that such refinancing or negotiation will occur. 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 to your partnership or any limited partner for any acts or failures to do any act performed by it of them in the absence of their willful malfeasance or gross negligence. 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 owned by AIMCO. See "Conflicts of Interest". Your partnership's agreement of limited partnership does not provide for indemnification of the general partner by your partnership for any acts or omissions performed by them. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $31,132.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 0 1995........................................................ 0 1996........................................................ 0 1997........................................................ 80.72
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions S-76 2845 (i.e., excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0 0 1995......................... 0 0 0 1996......................... 0 0 0 1997......................... 0 0 0 1998 (through June 30)....... 0.75 2.34% 2
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner on your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994............................................ $29,603 1995............................................ 48,022 1996............................................ 50,482 1997............................................ 54,217 1998 (through June 30)..........................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $61,659 1996........................................... 65,350 1997........................................... 69,823 1998 (through June 30)......................... 36,150
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 company paid to the property manager or AIMCO and its affiliates. S-77 2846 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Quail Run Associates, L.P. at December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The report dated February 24, 1998 refers to the fact that the partnership is not generating sufficient cash flow to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome from this uncertainty. S-78 2847 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-10 Notes to Financial Statements............................... F-11 Independent Auditors' Report................................ F-15 Balance Sheets as of December 31, 1996 and 1995............. F-16 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-17 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-18 Notes to Financial Statements............................... F-19
F-1 2848 QUAIL RUN ASSOCIATES LP CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 97,503 Receivables and Deposits.................................... 34,092 Investments................................................. 0 Restricted Escrows.......................................... 192,693 Other Assets................................................ 91,766 Investment Properties: Land...................................................... $ 332,000 Buildings and related personal property................... 6,218,230 ----------- 6,550,230 Less: Accumulated depreciation............................ (4,287,057) 2,263,173 ----------- ----------- Total Assets...................................... $ 2,679,227 =========== LIABILITIES AND PARTNERS' DEFICIT Other Accrued Liabilities................................... $ 10,526 Accrued Liabilities......................................... 343,362 Property Taxes Payable...................................... 98,777 Tenant Security Deposits.................................... 32,537 Notes Payable............................................... 4,454,100 Partners' Deficit........................................... (2,260,075) ----------- Total Liabilities and Partners' Deficit........... $ 2,679,227 ===========
See notes to interim financial statements. F-2 2849 QUAIL RUN ASSOCIATES LP CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $681,716 $660,288 Other Income.............................................. 38,510 36,056 -------- -------- Total Revenues.................................... 720,226 696,344 Expenses: Operating Expenses........................................ 277,115 261,510 General and Administrative Expenses....................... 9,486 10,090 Depreciation Expense...................................... 82,498 82,498 Interest Expense.......................................... 188,749 165,070 Property Tax Expense...................................... 55,441 36,373 -------- -------- Total Expenses.................................... 613,289 555,541 -------- -------- Net (Income) Loss................................. $106,937 $140,803 ======== ========
See notes to interim financial statements. F-3 2850 QUAIL RUN ASSOCIATES LP CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Operating Activities: Net Income................................................ $106,937 $140,803 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation........................................... 82,498 82,498 Changes in accounts: Receivables and deposits and other assets............ 11,025 (21,178) Accounts Payable and accrued expenses................ 8,173 (84,778) -------- -------- Net cash provided by (used in) operating activities....................................... 208,633 117,345 Investing Activities: Property improvements and replacements.................... (72,241) (48,945) Net increase in restricted escrows........................ (3,988) (3,594) -------- -------- Net cash used in investing activities............. (76,229) (52,539) Financing Activities: Payments on mortgage...................................... (64,814) (60,085) -------- -------- Net cash used in financing activities............. (64,814) (60,085) -------- -------- Net increase in cash and cash equivalents......... 67,590 4,721 Cash and cash equivalents at beginning of period............ 29,913 76,331 -------- -------- Cash and cash equivalents at end of period.................. $ 97,503 $ 81,052 ======== ========
See notes to interim financial statements. F-4 2851 QUAIL RUN ASSOCIATES, LP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Quail Run Associates, LP of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 2852 QUAIL RUN ASSOCIATES, LP FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 2853 INDEPENDENT AUDITORS' REPORT General Partners Quail Run Associates, LP: We have audited the accompanying balance sheets of Quail Run Associates, LP as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quail Run Associates, LP as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note E to the financial statements, the Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note E. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 24, 1998 F-7 2854 QUAIL RUN ASSOCIATES, LP BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 29,913 $ 76,331 Receivables and deposits.................................... 50,686 48,815 Restricted escrows.......................................... 188,705 181,440 Other assets................................................ 86,197 88,178 Investment properties: Land...................................................... 332,000 332,000 Buildings and related personal property................... 6,145,989 5,947,871 ----------- ----------- 6,477,989 6,279,871 Less accumulated depreciation............................. (4,204,559) (4,049,108) ----------- ----------- 2,273,430 2,230,763 ----------- ----------- $ 2,628,931 $ 2,625,527 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 2,727 $ 61,682 Payable to affiliate...................................... -- 1,171 Tenant security deposit liabilities....................... 33,777 33,097 Accrued taxes............................................. 109,583 87,103 Other liabilities......................................... 333,525 273,917 Notes payable............................................. 4,518,914 4,608,858 Partners' deficit........................................... (2,369,595) (2,440,301) ----------- ----------- $ 2,628,931 $ 2,625,527 =========== ===========
See Accompanying Notes to Financial Statements F-8 2855 QUAIL RUN ASSOCIATES, LP STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 1,331,575 $ 1,244,131 Other income.............................................. 77,305 68,842 ----------- ----------- Total revenues.................................... 1,408,880 1,312,973 ----------- ----------- Expenses: Operating................................................. 566,038 525,788 General and administrative................................ 45,383 45,581 Depreciation.............................................. 164,995 157,393 Interest.................................................. 432,170 439,242 Property taxes............................................ 127,005 66,182 ----------- ----------- Total expenses.................................... 1,335,591 1,234,186 ----------- ----------- Net income........................................ 73,289 78,787 Distributions to partners................................... (2,583) -- Partners' deficit at beginning of year...................... (2,440,301) (2,519,088) ----------- ----------- Partners' deficit at end of year............................ $(2,369,595) $(2,440,301) =========== ===========
See Accompanying Notes to Financial Statements F-9 2856 QUAIL RUN ASSOCIATES, LP STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- Cash flows from operating activities: Net income................................................ $ 73,289 $ 78,787 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 164,995 157,393 Amortization of discounts and loan costs............... 47,535 46,030 Loss on disposition of property........................ 8,577 -- Change in accounts: Receivables and deposits............................. (1,871) (5,631) Other assets......................................... (13,008) -- Accounts payable..................................... (58,955) (4,045) Payable to affiliate................................. (1,171) 1,171 Tenant security deposit liabilities.................. 680 (972) Accrued taxes........................................ 22,480 (16,918) Other liabilities.................................... 59,608 24,644 --------- --------- Net cash provided by operating activities......... 302,159 280,459 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (216,239) (183,736) Net deposits to restricted escrows........................ (7,265) (2,341) --------- --------- Net cash used in investing activities............. (223,504) (186,077) --------- --------- Cash flows from financing activities: Distributions to partners................................. (2,583) -- Payments on notes payable................................. (122,490) (113,551) --------- --------- Net cash used in financing activities............. (125,073) (113,551) --------- --------- Net decrease in cash and cash equivalents......... (46,418) (19,169) Cash and cash equivalents at beginning of year.............. 76,331 95,500 --------- --------- Cash and cash equivalents at end of year.................... $ 29,913 $ 76,331 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 327,820 $ 336,756 ========= =========
See Accompanying Notes to Financial Statements F-10 2857 QUAIL RUN ASSOCIATES, LP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Quail Run Associates, LP (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated May 31, 1984. The Partnership owns and operates a 166 unit apartment complex, Quail Run Apartments, in Indianapolis, Indiana. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings and personal property are depreciated over a 5 to 25 year period. Other Assets Other assets at December 31, 1997 and 1996, include unamortized deferred loan costs of $73,189 and $88,178, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-11 2858 QUAIL RUN ASSOCIATES, LP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996, consist of the following:
1997 1996 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the 1992 loan refinancing were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements have been completed and the excess funds will be returned for property operations................................................ $ 11,961 $ 11,961 Reserve Escrow -- A portion of the proceeds of the 1992 loan refinancing were placed into a reserve escrow. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan...... 176,744 169,479 -------- -------- $188,705 $181,440 ======== ========
NOTE C -- NOTES PAYABLE Notes payable at December 31, 1997 and 1996, consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $36,617, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $4,102,817 $4,225,307 Second mortgage note payable in interest only monthly installments of $909, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 143,487 143,487 Unsecured 12.5% promissory note payable to Jacques-Miller Income Fund II, an affiliate, matured in June 1997, monthly payments of excess cash flows from the preceding year, as defined in the note agreement.................... 454,522 454,522 ---------- ---------- Principal balance at year end............................... 4,700,826 4,823,316 Less unamortized discount................................... (181,912) (214,458) ---------- ---------- $4,518,914 $4,608,858 ========== ==========
Accrued interest on the note payable to Jacques-Miller Income Fund II, which is included in other liabilities, was $301,121 and $244,305 at December 31, 1997 and 1996, respectively. The Managing General Partner is currently attempting to either extend the maturity date or refinance the Partnership's unsecured promissory note in order to obtain the funds necessary to satisfy the amount due to Jacques-Miller Income Fund II. The negotiations are expected to be completed during the second quarter of 1998; however, there is no assurance that the negotiations will be successful. F-12 2859 QUAIL RUN ASSOCIATES, LP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Scheduled principal payments of the notes during the years subsequent to December 31, 1997, are as follows: 1998..................................................... $ 586,650 1999..................................................... 142,529 2000..................................................... 153,746 2001..................................................... 165,847 2002..................................................... 3,652,054 ---------- $4,700,826 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates, in addition to those disclosed in Note C, are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee.............................................. $69,823 $65,350 Partnership administration fee.............................. $15,444 $16,848 Reimbursement for services of affiliates.................... $21,534 $21,031 Construction oversight costs................................ $17,239 $12,603
NOTE E -- GOING CONCERN The Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. The Managing General Partner is attempting to refinance the existing debt. The Managing General Partner believes that it will be successful, however there can be no assurance that refinancing will be obtained. The financial statements have been prepared assuming that the Partnership will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. F-13 2860 QUAIL RUN, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 2861 INDEPENDENT AUDITORS' REPORT General Partners Quail Run, Limited: We have audited the accompanying balance sheets of Quail Run Associates, LP as of December 31, 1996 and 1995, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quail Run, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 26, 1997 F-15 2862 QUAIL RUN ASSOCIATES, LP BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 76,331 $ 95,500 Restricted-tenant security deposits....................... 33,120 34,092 Accounts receivable......................................... 1,178 340 Escrow for taxes............................................ 14,517 8,752 Restricted escrows (Note B)................................. 181,440 179,099 Other assets................................................ 88,178 103,082 Investment properties (Note C): Land...................................................... 332,000 332,000 Buildings and related personal property................... 5,947,871 5,764,135 ----------- ----------- 6,279,871 6,096,135 Less accumulated depreciation............................. (4,049,108) (3,891,715) ----------- ----------- 2,230,763 2,204,420 ----------- ----------- $ 2,625,527 $ 2,625,285 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 61,682 $ 65,727 Payable to affiliate...................................... 1,171 -- Tenant security deposits.................................. 33,097 34,069 Accrued taxes............................................. 87,103 104,021 Other liabilities (Note C)................................ 273,917 249,273 Notes payable (Note C).................................... 4,608,858 4,691,283 Partners' deficit........................................... (2,440,301) (2,519,088) ----------- ----------- $ 2,625,527 $ 2,625,285 =========== ===========
See Accompanying Notes to Financial Statements F-16 2863 QUAIL RUN ASSOCIATES, LP STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 1,244,131 $ 1,194,163 Other income.............................................. 68,842 58,133 ----------- ----------- Total revenues.................................... 1,312,973 1,252,296 ----------- ----------- Expenses: Operating (Note D)........................................ 365,962 343,849 General and administrative (Note D)....................... 45,581 41,527 Maintenance............................................... 159,826 186,733 Depreciation.............................................. 157,393 143,374 Interest.................................................. 439,242 445,698 Property taxes............................................ 66,182 99,378 ----------- ----------- Total expenses.................................... 1,234,186 1,260,559 ----------- ----------- Net income (loss)........................................... 78,787 (8,263) Partners' deficit at beginning of year...................... (2,519,088) (2,510,825) ----------- ----------- Partners' deficit at end of year............................ $(2,440,301) $(2,519,088) =========== ===========
See Accompanying Notes to Financial Statements F-17 2864 QUAIL RUN ASSOCIATE, LP STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Cash flows from operating activities: Net income (loss)......................................... $ 78,787 $ (8,263) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 157,393 143,374 Amortization of discounts and loan costs............... 46,030 44,629 Change in accounts: Restricted cash...................................... 972 4,102 Accounts receivable.................................. (838) 1,518 Escrow for taxes..................................... (5,765) 22,478 Accounts payable..................................... (4,045) 50,796 Payable to affiliate................................. 1,171 -- Tenant security deposit liabilities.................. (972) (3,365) Accrued taxes........................................ (16,918) 117 Other liabilities.................................... 24,644 81,298 --------- --------- Net cash provided by operating activities......... 280,459 336,684 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (183,736) (239,528) Deposits to restricted escrows............................ (7,918) (5,816) Receipts from restricted escrows.......................... 5,577 14,127 --------- --------- Net cash used in investing activities............. (186,077) (231,217) --------- --------- Cash flows from financing activities: Payments on notes payable................................. (113,551) (105,268) --------- --------- Net cash used in financing activities............. (113,551) (105,268) --------- --------- Net increase (decrease) in cash................... (19,169) 199 Cash and cash equivalents at beginning of year.............. 95,500 95,301 --------- --------- Cash and cash equivalents at end of year.................... $ 76,331 $ 95,500 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 336,756 $ 345,042 ========= =========
See Accompanying Notes to Financial Statements F-18 2865 QUAIL RUN ASSOCIATES, LP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Quail Run Associates, LP (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated May 31, 1984. The Partnership owns and operates a 166 unit apartment complex, Quail Run Apartments in Indianapolis, Indiana. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings and personal property are depreciated over a 5 to 25 year period. Other Assets Other assets at December 31, 1996 and 1995 consist of deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. F-19 2866 QUAIL RUN ASSOCIATES, LP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in calendar year 1996 and the excess funds will be returned for property operations in 1997........................................ $ 11,961 $ 11,178 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 169,479 167,921 -------- -------- $181,440 $179,099 ======== ========
NOTE C -- NOTES PAYABLE Notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $36,617, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $4,225,307 $4,338,858 Second mortgage note payable in interest only monthly installments of $909, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 143,487 143,487 Unsecured 12.5% promissory note payable to Jacques-Miller Income Fund II, an affiliate, due June 1997, monthly payments of excess cash flows from the preceding year, as defined in the note agreement............................. 454,522 454,522 ---------- ---------- Principal balance at year end............................... 4,823,316 4,936,867 Less unamortized discount................................... (214,458) (245,584) ---------- ---------- $4,608,858 $4,691,283 ========== ==========
Accrued interest on the note payable to Jacques-Miller Income Fund II, which is included in other liabilities, was $244,305 and $187,490 at December 31, 1996 and 1995, respectively. Scheduled principal payments of the notes during the years subsequent to December 31, 1996 are as follows: 1997.................................................... $ 577,011 1998.................................................... 132,129 1999.................................................... 142,529 2000.................................................... 153,746 2001.................................................... 165,847 Thereafter.............................................. 3,652,054 ---------- $4,823,316 ==========
F-20 2867 QUAIL RUN ASSOCIATES, LP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. The unsecured note may be prepaid at any time without penalty. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates, in addition to those disclosed in Note C, are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee.............................................. $65,350 $61,659 Partnership administration fee.............................. $16,848 $12,298 Reimbursement for services of affiliates.................... $21,031 $21,655 Construction fee............................................ $12,603 $14,069
F-21 2868 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 2869 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 2870 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 September , 1998 A-3 2871 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF RAVENWORTH ASSOCIATES 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. STRANGER & 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 2872 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-16 Stanger Analysis............................. S-17 Comparison of Your Partnership and the AIMCO 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 Ravenworth 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-29 Expected Benefits of the Offer............... S-30 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-35 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-36 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-41 General...................................... S-41 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 2873
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-75 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 2874 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 Ravenworth 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 2875 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 2876 - 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 interests paid on AIMCO's Class A Common Stock. We expect this to continue in the future. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 principle 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 made a distribution. 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). 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 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. 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 S-3 2877 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 2878 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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. 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-5 2879 (This page intentionally left blank) S-6 2880 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. 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. 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 5 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. 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 S-7 2881 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. 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. Although your partnership did not make any distributions in 1998, it might make distributions in the future. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 2882 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 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 S-9 2883 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 2884 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, or 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. 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 S-11 2885 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 0% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 2886 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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). Your partnership has not paid any distributions on your units since the inception of your partnership. - 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. S-13 2887 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 2888 - 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 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" STARTING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO S-15 2889 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 own 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 S-16 2890 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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 Consideration 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-1 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, unlike the general partner of the AIMCO Operating Partnership, the general partner of your partnership is entitled to compensation for its services as general partner. S-17 2891 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 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 generated in that capacity. The property manager received management fees of $110,013 in 1996, $119,689 in 1997 and $58,703 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 Your Partnership and its Property. Ravenworth Associates Limited Partnership is a Massachusetts limited partnership which was formed on June 21, 1983 for the purpose of owning and operating a single apartment property located in Annandale, Virginia, known as "Ravenworth Towers Apartments". In 1993, it completed a private placement of units that raised net proceeds of approximately $3,648,000. Ravenworth Towers Apartments consists of 219 apartment units. Your partnership has no employees. Property Management. Since November 1997, your partnership's property has been managed by an entity which is now our affiliate. 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. S-18 2892 Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2013, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $9,799,800, payable to FNMA, which bears interest at a rate of 8.38%. The mortgage debt is due in November 2003. Your partnership also has a second mortgage note outstanding of $2,996,882, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner has no loans outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2893 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 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 2894
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 2895 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 2896
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 2897 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 2898 SUMMARY FINANCIAL INFORMATION OF RAVENWORTH ASSOCIATES LIMITED PARTNERSHIP The summary financial information of Ravenworth Associates Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Ravenworth Associates Limited Partnership for the years ended December 31, 1997 and 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 of Your Partnership" included herein. See "Index to Financial Statements." RAVENWORTH ASSOCIATES LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, --------------------------- --------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ----------- ----------- ----------- OPERATING DATA: Total Revenues........... 1,159,973 0 2,330,706 2,259,495 2,198,769 2,146,340 2,098,653 Net Income/(Loss)........ (204,152) 0 (348,555) (612,292) (557,596) (632,926) (636,601) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation........... 1,628,807 0 1,754,454 2,193,267 2,739,110 3,299,120 3,829,975 Total Assets............. 2,566,762 0 2,680,035 3,142,207 3,672,154 4,230,743 4,868,633 Mortgage Notes Payable, including Accrued Interest............... 12,866,682 0 13,066,882 1,136,192 13,066,882 13,066,882 13,066,882 Partners' Capital/(Deficit)...... (10,635,598) 0 (10,431,446) (10,082,891) (9,470,599) (8,913,001) (8,280,075)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership. S-25 2899 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. 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 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 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, 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 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. S-26 2900 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 Code. 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 therefore 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 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. 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 S-27 2901 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 of $ are expected with respect to the Preferred OP Units, and current annualized distributions with respect to the Common OP Units are $2.25. Your partnership has not made a distribution in the last five 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's assigned a "ba3" rating to the Class I Preferred Stock proposed to be S-28 2902 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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-29 2903 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment properties may 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. Also, there have never been any distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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. Your Partnership has not paid any distributions on your units since the inception of your partnership. However, one class of outstanding Partnership Preferred Units has prior distribution rights and the S-30 2904 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 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). Your Partnership has not paid any distributions on your units since the inception of your partnership. 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 2905 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 and the expiration of the offer. See "Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. S-32 2906 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 2907 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. 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 S-34 2908 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." 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. 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. S-35 2909 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, (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 considerations 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 9:00 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 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, Denver, Colorado 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. S-36 2910 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-37 2911 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, which change, 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 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 S-38 2912 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 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 S-39 2913 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-40 2914 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. 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. DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. S-41 2915 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 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 S-42 2916 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 payment. 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 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 S-43 2917 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-44 2918 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-45 2919 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-46 2920 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-47 2921 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-48 2922 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-49 2923 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 2924 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-51 2925 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 2926 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 2927 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 2928 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 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, a third party expert, 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 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 of $ are expected with respect to the Preferred OP Units, and current annualized distributions with respect to the Common OP Units are $2.25. Your partnership has not made a distribution in the last five 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 properties although there are other ways to value real estate. A liquidation in the future might generate a higher price for holders of units. S-55 2929 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 Consideration.................................... $ Alternatives: Prices on Secondary Market................................ Not available Estimated Liquidation Proceeds............................ $
S-56 2930 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. 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-1 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-57 2931 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 2932 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 September 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 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 property was 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, S-59 2933 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Ravenworth Towers Apartments. 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 (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 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 and The purpose of the AIMCO Operating Partnership is to operate of your partnership's property. Subject to conduct any business that may be lawfully conducted by restrictions contained in your partnership's agreement a limited partnership organized pursuant to the of limited partnership, your partnership may perform Delaware Revised Uniform Limited Partnership Act (as all act necessary, advisable or convenient to the amended from time to time, or any successor to such business of your partnership including borrowing money statute) (the "Delaware Limited Partnership Act"), 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-61 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 not more than 50 Class A 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. 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 of your partnership may funds or other assets to its subsidiaries or other employ themselves or their affiliates if necessary or persons in which it has an equity investment, and such appropriate to carry out the business and affairs of persons may borrow funds from the AIMCO Operating your partnership and pay such fees, expenses, salaries, Partnership, on terms and conditions established in the wages and other compensation to such party as the sole and absolute discretion of the general partner. To general partner in its sole discretion determine. Your the extent consistent with the business purpose of the partnership's agreement of limited partnership also AIMCO Operating Partnership and the permitted specifies certain contracts that your partnership will activities of the general partner, the AIMCO Operating or has entered into with the general partner of your Partnership may transfer assets to joint ventures, partnership and certain of their affiliates. Your limited liability companies, partnerships, partnership is allowed to borrow money from the general corporations, business trusts or other business partner and their affiliates 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 may borrow The AIMCO Operating Partnership Agreement contains no money in the name and on behalf of your partnership restrictions on borrowings, and the general partner has and, as security therefor, to mortgage, pledge or full power and authority to borrow money on behalf of otherwise encumber the assets of your partnership. The the AIMCO Operating Partnership. The AIMCO Operating general partner is authorized to execute and deliver, Partnership has credit agreements that restrict, among for and on behalf of your partnership, such notes and other things, its ability to incur indebtedness. See other evidences of indebtedness, contracts, agreements, "Risk Factors -- Risks of Significant Indebtedness" in assignments, deeds, leases, loan agreements, mortgages the accompanying Prospectus. and other security instruments and agreements as they deem proper, all on such terms and conditions as they deem proper.
S-62 2936 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 or its duly authorized with a statement of the purpose of such demand and at representative to have access at all reasonable times such OP Unitholder's own expense, to obtain a current to the books of account at the principal office of your list of the name and last known business, residence or partnership or at such other place as the general mailing address of the general partner and each other partner will determine. The general partner is not OP Unitholder. required to deliver or mail copies of your partnership's certificate of limited partnership or copies of certificates of amendment thereto or cancellation thereof to the limited partners, although such documents are available for review and copying by the limited partners at your partnership's principal office.
Management Control The overall management and control of the business and All management powers over the business and affairs of affairs of your partnership is vested solely in the the AIMCO Operating Partnership are vested in AIMCO-GP, general partner of your partnership. The limited Inc., which is the general partner. No OP Unitholder partners are not permitted to take part in the control has any right to participate in or exercise control or of the business or affairs of your partnership, to have management power over the business and affairs of the any voice in the management or operation of any AIMCO Operating Partnership. The OP Unitholders have partnership's property, to possess the authority or the right to vote on certain matters described under power to act as agent for or on behalf of your "Comparison of Ownership of Your Units and AIMCO OP partnership or any other partner, to do any act which Units -- Voting Rights" below. The general partner may would be binding on your partnership or any other not be removed by the OP Unitholders with or without partner nor to incur any expenditure on behalf of or cause. with respect to your partnership. 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 partners of your partnership the AIMCO Operating Partnership Agreement, the general and their affiliates will not incur any liability, partner is not liable to the AIMCO Operating responsibility or accountability for damages or Partnership for losses sustained, liabilities incurred otherwise to your partnership or any limited partner or benefits not derived as a result of errors in for any acts or omissions performed or omitted by any judgment or mistakes of fact or law of any act or of them in good faith on behalf of your partnership and omission if the general partner acted in good faith. in a manner reasonably believed by them to be within The AIMCO Operating Partnership Agreement provides for the scope of the authority granted to them by your indemnification of AIMCO, or any director or officer of partnership's agreement of limited partnership and in AIMCO (in its capacity as the previous general partner the best interests of your partnership if they are not of the AIMCO Operating Partnership), the general guilty of negligence or willful misconduct with respect partner, any officer or director of general partner or to such acts of omissions. In addition, your the AIMCO Operating Partnership and such other persons partnership will indemnify the general partners for any as the general partner may designate from and against act performed by them within the scope of the authority all losses, claims, damages, liabilities, joint or conferred upon them by your partnership's agreement of several, expenses (including legal fees), fines, limited partnership; provided, however, that such settlements and other amounts incurred in connection indemnity will be payable only if the general partners with any actions relating to the operations of the acted in good faith and in a manner AIMCO Operat-
S-63 2937 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP they reasonably believed to be in, or not opposed to, ing Partnership, as set forth in the AIMCO Operating the best interests of your partnership and the partners Partnership Agreement. The Delaware Limited Partnership and has no reasonable grounds to believe that their Act provides that subject to the standards and conduct was negligent or unlawful. If a general partner restrictions, if any, set forth in its partnership is liable for negligence of misconduct in the agreement, a limited partnership may, and shall have performance of its duty to your partnership, it will the power to, indemnify and hold harmless any partner not be indemnified unless, and only to the extent that, or other person from and against any and all claims and the court in which such action or suit was brought demands whatsoever. It is the position of the determines that in view of all the circumstances of the Securities and Exchange Commission that indemnification case, despite the adjudication of liability, the of directors and officers for liabilities arising under general partner is fairly and reasonably entitled to the Securities Act is against public policy and is indemnity for those expenses which the court deems unenforceable pursuant to Section 14 of the Securities proper. Any indemnity will be paid from, and only to Act of 1933. the extent of, partnership assets.
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 the vote of the limited partners holding affairs of the AIMCO Operating Partnership. The general more than 50% of the then outstanding Class A and Class partner may not be removed as general partner of the B units. A general partner may not withdraw voluntarily AIMCO Operating Partnership by the OP Unitholders with from your partnership unless the remaining general or without cause. Under the AIMCO Operating Partnership partner consents, the granting or denying of which will Agreement, the general partner may, in its sole be in the remaining general partner's absolute discretion, prevent a transferee of an OP Unit from discretion. A limited partner may not transfer his becoming a substituted limited partner pursuant to the interests without the consent of the general partners. 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 upon without or without the consent of the in the AIMCO Operating Partnership Agreement, whereby general partners if such proposed amendment is approved the general partner may, without the consent of the OP by a majority in interest of Class A and Class D Unitholders, amend the AIMCO Operating Partnership limited partners and does not in any manner allow the Agreement, amendments to the AIMCO Operating limited partners to take part in the control of your Partnership Agreement require the consent of the partnership's business or otherwise modify the limited holders of a majority of the outstanding Common OP liability of the limited partners, does not extend the Units, excluding AIMCO and certain other limited term of your partnership's agreement of limited exclusions (a "Majority in Interest"). Amendments to partnership, does not increase the amount that any the AIMCO Operating Partnership Agreement may be limited partner is required to contribute to the proposed by the general partner or by holders of a capital of your partnership or require such partner to Majority in Interest. Following such proposal, the make a loan to your partnership without such partners general partner will submit any proposed amendment to written consent, does not alter the rights, powers, the OP Unitholders. The general partner will seek the obligations or duties of the general partner without written consent of the OP Unitholders on the proposed such general partner's consent, does not affect the amendment or will call a meeting to vote thereon. See rights, powers or obligations of Class B or Class C "Description of OP Units -- Amendment of the AIMCO limited partners and does not alter the amendment Operating Partnership Agreement" in the accompanying provisions. The general partners may, without the Prospectus. consent or approval of the limited partners amend your partnership's agreement of limited partnership to (i) add to the duties or obligations of the general partners or surrender any right or power granted to the general partners by your partnership's agreement of limited partnership, (ii) cure any ambiguity, correct or supplement any provision which may be inconsistent with any other provision or to add provisions with respect to matters or questions arising under your partnership's agreement of limited partnership which will not be inconsistent with any other provisions of your partnership's agreement of limited partnership and (iii) delete or add any provision required to be so deleted or added by applicable securities laws; provided that no such amendment may be made which is adverse to the interests of the limited partners, does not affect the method of allocation of cash distribution or net profits and loses, does not
S-64 2938 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP affect the limited liability of the limited partners and the status of your partnership as a partnership for tax purposes.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to compensation for additional services nership is responsible for all expenses incurred rendered. 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, so long as a limited partner does not take negligence, no OP Unitholder has personal liability for part in the control of your partnership business, the the AIMCO Operating Partnership's debts and liability of such limited partner for the losses, debts obligations, and liability of the OP Unitholders for and obligations of your partnership will be limited to the AIMCO Operating Partnership's debts and obligations the amounts contributed and agreed to be contributed by is generally limited to the amount of their invest- such limited partnership to the capital of your ment in the AIMCO Operating Partnership. However, the partnership and such limited partner's share of limitations on the liability of limited partners for undistributed net profits; provided, however, that the obligations of a limited partnership have not been under applicable partnership law, a limited partner may clearly established in some states. If it were be liable to your partnership to the extent of previous determined that the AIMCO Operating Partnership had distributions made it in the event that your been conducting business in any state without compli- partnership does not have sufficient assets to ance with the applicable limited partnership statute, discharge its liabilities. 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 devote such time partnership agreement, Delaware law generally requires and effort to your partnership business as may be a general partner of a Delaware limited partnership to necessary to promote adequately the interests of your adhere to fiduciary duty standards under which it owes partnership and the mutual interest of the partners. its limited partners the highest duties of good faith, However, the general partner is not required to devote fairness and loyalty and which generally prohibit such substantial time to your partnership business and any general partner from taking any action or engaging in general partner may at any time and from time to time any transaction as to which it has a conflict of engage in and possess interests in other business interest. The AIMCO Operating Partnership Agreement ventures of any and every type and description, expressly authorizes the general partner to enter into, including, without limitation, the ownership, on behalf of the AIMCO Operating Partnership, a right operation, financing and management of real estate, of first opportunity arrangement and other conflict which may be competitive with your partnership, and avoidance agreements with various affiliates of the neither your partnership nor any partner will have any AIMCO Operating Partnership and the general partner, on right, title or interest in or to such independent such terms as the general partner, in its sole and ventures. 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.
S-65 2939 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP See "Description of OP Units -- Fiduciary Responsibilities" in the accompanying Prospectus.
Federal Income Taxation There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-66 2940 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, the general applicable law or in the AIMCO ship Agreement, the OP Unitholders partners may not voluntarily sell Operating Partnership Agreement, have voting rights only with all or substantially all of your the holders of the Preferred OP respect to certain limited matters partnership's assets at one time Units will have the same voting such as certain amendments and unless not less than sixty days rights as holders of the Common OP termination of the AIMCO Operating prior to the date of such sale the Units. See "Description of OP Partnership Agreement and certain general partners deliver to the Units" in the accompanying transactions such as the Class A limited partners and Class Prospectus. So long as any institution of bankruptcy D limited partners, in writing, Preferred OP Units are outstand- proceedings, an assignment for the their intention to sell and during ing, in addition to any other vote benefit of creditors and certain the thirty-day period immediately or consent of partners required by transfers by the general partner of following the giving of such law or by the AIMCO Operating its interest in the AIMCO Operating notice, they do not receive written Partnership Agreement, the Partnership or the admission of a objection to such sale from the affirmative vote or consent of successor general partner. Class A and Class D limited holders of at least 50% of the partners who own more than one-half outstanding Preferred OP Units will Under the AIMCO Operating Partner- of the outstanding Class A and be necessary for effecting any ship Agreement, the general partner Class D units. Upon a vote of the amendment of any of the provisions has the power to effect the majority in interest of the Class A of the Partnership Unit Desig- acquisition, sale, transfer, and Class B limited partners, nation of the Preferred OP Units exchange or other disposition of without the consent of the general that materially and adversely any assets of the AIMCO Operating partners, such limited partners affects the rights or preferences Partnership (including, but not may, amend your partnership's of the holders of the Preferred OP limited to, the exercise or grant agreement of limited partnership, Units. The creation or issuance of of any conversion, option, subject to certain exceptions, any class or series of partnership privilege or subscription right or dissolve your partnership and units, including, without any other right available in remove any of the general partners. limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating A general partner may cause the superior to the Preferred OP Units, Partnership) or the merger, dissolution of your partnership by shall not be deemed to materially consolidation, reorganization or retiring. Your partnership may then adversely affect the rights or other combination of the AIMCO be continued by the remaining preferences of the holders of Operating Partnership with or into general partner or, if no general Preferred OP Units. With respect to another entity, all without the partner remains, the Class A and the exercise of the above de- consent of the OP Unitholders. Class D limited partners may elect scribed voting rights, each to continue your partnership's Preferred OP Units shall have one The general partner may cause the business by unanimous consent (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating within ninety days after the Partnership by an "event of retirement of the general partner. 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 availa- declared the
S-67 2941 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 Net cash distributions at the rate of Partnership to distribute quarterly Cash Flow (as defined in your $ per Preferred OP Unit; all, or such portion as the general partnership's agreement of limited provided, however, that at any time partner may in its sole and abso- partnership) are to be made within and from time to time on or after lute discretion determine, of ninety days after the end of each the fifth anniversary of the issue Available Cash (as defined in the year. The distributions payable to date of the Preferred OP Units, the AIMCO Operating Partnership the partners are not fixed in AIMCO Operating Partnership may Agreement) generated by the AIMCO amount and depend upon the adjust the annual distribution rate Operating Partnership during such operating results and net sales or on the Preferred OP Units to the quarter to the general partner, the refinancing proceeds available from lower of (i) % plus the annual special limited partner and the the disposition of your interest rate then applicable to holders of Common OP Units on the partnership's assets. Your U.S. Treasury notes with a maturity record date established by the partnership has not made of five years, and (ii) the annual general partner with respect to distributions in the past and is dividend rate on the most recently such quarter, in accordance with not projected to made distributions issued AIMCO non-convertible their respective interests in the in 1998. 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 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 partners consent, the Preferred OP Units are not listed nership Agreement restricts the granting of which will be in the on any securities exchange. The transferability of the OP Units. general partners' absolute Preferred OP Units are subject to Until the expiration of one year discretion, (2) the transfer, in restrictions on transfer as set from the date on the opinion of your forth
S-68 2942 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS partnership's counsel, does not in the AIMCO Operating Partnership which an OP Unitholder acquired OP result in a termination of your Agreement. Units, subject to certain partnership for tax purposes, (3) exceptions, such OP Unitholder may the transferee did not own any Pursuant to the AIMCO Operating not transfer all or any portion of interest in your partnership's Partnership Agreement, until the its OP Units to any transferee property or in an entity which expiration of one year from the without the consent of the gen- owned any interest in your date on which a holder of Preferred eral partner, which consent may be partnership's property in 1980 and OP Units acquired Preferred OP withheld in its sole and absolute (4) the transfer, in the opinion of Units, subject to certain discretion. After the expiration of counsel to your partnership, may be exceptions, such holder of one year, such OP Unitholder has effected without registration under Preferred OP Units may not transfer the right to transfer all or any applicable securities laws. A all or any portion of its Pre- portion of its OP Units to any transferee may become a substi- ferred OP Units to any transferee person, subject to the satisfaction tute partner if, in addition to the without the consent of the general of certain conditions specified in foregoing conditions: (1) the partner, which consent may be the AIMCO Operating Partnership assignor gives the assignee such withheld in its sole and absolute Agreement, including the general right, (2) the assignee pays the discretion. After the expiration of partner's right of first refusal. costs and expenses incurred in con- one year, such holders of Preferred See "Description of OP Units -- nection with such substitution and OP Units has the right to transfer Transfers and Withdrawals" in the (3) the assignee fulfills such all or any portion of its Preferred accompanying Prospectus. other conditions as may be required OP Units to any person, subject to by the general partner. the satisfaction of certain After the first anniversary of There are no redemption rights conditions specified in the AIMCO becoming a holder of Common OP associated with your units. 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 general partner may, in its of Class I Cumulative Preferred sole and absolute discretion but Stock of AIMCO that pay an subject to the restrictions on the aggregate amount of dividends yield ownership of Class A Common Stock equivalent to the distributions on imposed under the AIMCO's charter the Preferred OP Units tendered for and the transfer restrictions and redemption and are part of a class other limitations thereof, elect to or series of preferred stock that cause AIMCO to acquire some or all is then listed on the New York of the tendered Common OP Units in Stock Exchange or another national exchange for Class A Common Stock, securities exchange, or (iii) a based on an exchange ratio of one number of shares of Class A Common share of Class A Common Stock for Stock of AIMCO that is equal in each Common OP Unit, subject to Value to the Liquidation Preference adjustment as provided in the AIMCO of the Preferred OP Units tendered Operating 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-69 2943 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 generated in its capacity as general partner. The property manager received management fees of $110,013 in 1996 and $119,689 in 1997 and $58,703 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's 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'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 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-70 2944 YOUR PARTNERSHIP GENERAL Ravenworth Associates Limited Partnership is a Massachusetts limited partnership which raised net proceeds of approximately $3,648,000 in 1993 through a private offering. The promoter for the private offering of your partnership was Winthrop Financial Co., Inc.. Insignia acquired your partnership in November 1997. AIMCO acquired Insignia in October, 1998. There are currently a total of 59 limited partners of your partnership and a total of 50 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on June 21, 1983 for the purpose of owning and operating a single apartment property located in Annandale, Virginia, known as "Ravenworth Towers Apartments." Your partnership's property consists of 219 apartment units. There are 144 one-bedroom apartments and 75 two-bedroom apartments. The total rentable square footage of your partnership's property is 175,200 square feet. The average annual rent per apartment unit is approximately $9,943. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1997, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $110,013, $96,770, and $58,703, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2013 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 2945 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $9,799,800, payable to FNMA, which bears interest at a rate of 8.38%. The mortgage debt is due in November 2003. Your partnership also has a second mortgage note outstanding of $2,996,882, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE AUDITED FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 2946 Below is selected financial information for Ravenworth Associates Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
RAVENWORTH ASSOCIATES LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, --------------------------- ----------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ ------------ ----------- BALANCE SHEET DATA Cash and Cash Equivalents.......... 531,267 Not 607,022 578,205 859,974 839,868 919,013 Land & Building........ 14,185,770 Available 13,992,318 13,792,944 13,709,572 13,642,588 13,550,830 Accumulated Depreciation......... (12,556,963) 0 (12,237,864) (11,599,677) (10,970,462) (10,343,468) (9,720,855) Other Assets........... 406,688 0 318,559 370,735 73,070 91,755 119,645 ------------ ------------ ------------ ------------ ------------ ------------ ----------- Total Assets...... 2,566,762 0 2,680,035 3,142,207 3,672,154 4,230,743 4,868,633 ============ ============ ============ ============ ============ ============ =========== Mortgage & Accrued Interest............. 12,866,682 13,014,001 13,136,192 13,066,882 13,066,882 13,066,882 Other Liabilities...... 335,678 97,480 88,906 75,871 76,862 81,826 ------------ ------------ ------------ ------------ ------------ ------------ ----------- Total Liabilities.. 13,202,360 0 13,111,481 13,225,098 13,142,753 13,143,744 13,148,708 ------------ ------------ ------------ ------------ ------------ ------------ ----------- Partners Capital (Deficit)............ (10,635,598) 0 (10,431,446) (10,082,891) (9,470,599) (8,913,001) (8,280,075) ============ ============ ============ ============ ============ ============ ===========
RAVENWORTH ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATION DATA Rental Revenue..................... 1,055,795 2,168,322 2,064,880 2,006,907 1,981,110 1,908,600 Other Income....................... 104,178 162,384 194,615 191,862 165,230 190,053 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. 1,159,973 0 2,330,706 2,259,495 2,198,769 2,146,340 2,098,653 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 386,937 0 768,053 706,403 756,111 795,078 775,843 General & Administrative........... 58,703 73,441 75,718 39,706 34,740 32,973 Depreciation....................... 319,099 638,197 629,205 626,994 622,613 615,082 Interest Expense................... 512,476 1,033,315 1,295,949 1,155,000 1,155,000 1,155,000 Property Taxes..................... 86,910 166,255 164,512 178,554 171,835 156,356 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ 1,364,125 0 2,679,261 2,871,787 2,756,365 2,779,266 2,735,254 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income................ (204,152) 0 (348,555) (612,292) (557,596) (632,926) (636,601) ========== ========== ========== ========== ========== ========== ==========
S-73 2947 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Due to this partnership being a recent acquisition, very little discussion is available for variances. Results of Operations Six Months Ended June 30, 1998 Due to this partnership being a recent acquisition, no data was available for the six months ended June 30, 1997. Net Income Your partnership recognized a net loss of $204,152 for the six months ended June 30, 1998. Revenues Rental and other property revenues from the partnership's property totaled $1,159,973 for the six months ended June 30, 1998. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $386,937 for the six months ended June 30, 1998. Management expenses totaled $58,703 for the six months ended June 30, 1998. General and Administrative Expenses General and administrative expenses totaled $58,703 for the six months ended June 30, 1998. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $512,476 for the six months ended June 30, 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $348,555 for the year ended December 31, 1997, compared to a net loss of $612,292 for the year ended December 31, 1996 an increase of $263,737, or 43.07%. Revenues Rental and other property revenues from the partnership's property totaled $2,330,706 for the year ended December 31, 1997, compared to $2,259,495 for the year ended December 31, 1996, an increase of $71,211, or 3.15%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $721,805 for the year ended December 31, 1997, compared to $672,108 for the year ended December 31, 1996, an increase of $49,697 or 7.39%. Management expenses totaled $119,689 for the year ended December 31, 1997, compared to $110,013 for the year ended December 31, 1996, an increase of $9,676 or 8.80%. S-74 2948 General and Administrative Expenses General and administrative expenses totaled $119,689 for the year ended December 31, 1997 compared to $110,013 for the year ended December 31, 1996, an increase of $9,676 or 8.80%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,033,315 for the year ended December 31, 1997, compared to $1,295,949 for the year ended December 31, 1996, a decrease of $262,634, or 20.27%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995. Net Income Your partnership recognized a net loss of $612,292 for the year ended December 31, 1996, compared to $557,596 for the year ended December 31, 1995, an increase of $54,696, or 9.81%. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,259,495 for the year ended December 31, 1996, compared to $2,198,769 for the year ended December 31, 1995, an increase of $60,726, or 2.76%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $672,108 for the year ended December 31, 1996, compared to $756,111 for the year ended December 31, 1995, a decrease of $84,003 or 11.11%. Management expenses totaled $110,013 for the year ended December 31, 1996, compared to $107,406 for the year ended December 31, 1995, an increase of $2,607, or 2.43%. General and Administrative Expenses General and administrative expenses totaled $110,013 for the year ended December 31, 1996 compared to $39,706 for the year ended December 31, 1995, an increase of $70,307 or 177.07%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,295,949 for the year ended December 31, 1996, compared to $1,155,000 for the year ended December 31, 1995, an increase of $140,949, or 12.20%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $531,267 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 partners of your partnership and their affiliates will not incur any liability, responsibility or accountability for damages or otherwise to your partnership or any limited partner for any acts or omissions performed or omitted by any of them in good faith on behalf of your partnership and in a manner reasonably believed by them to be within the scope of the S-75 2949 authority granted to them by your partnership's agreement of limited partnership and in the best interests of your partnership if they are not guilty of negligence or willful misconduct with respect to such acts of omissions. 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 owned by AIMCO. See "Conflicts of Interest". Your partnership will indemnify the general partners for any act performed by them within the scope of the authority conferred upon them by your partnership's agreement of limited partnership; provided, however, that such indemnity will be payable only if the general partners acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of your partnership and the partners and has no reasonable grounds to believe that their conduct was negligent or unlawful. If a general partner is liable for negligence of misconduct in the performance of its duty to your partnership, it will not be indemnified unless, and only to the extent that, the court in which such action or suit was brought determines that in view of all the circumstances of the case, despite the adjudication of liability, the general partner is fairly and reasonably entitled to indemnity for those expenses which the court deems proper. Any indemnity will be paid from, and only to the extent of, partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions Your partnership has made no distributions. The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $9,600.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $0 1995........................................................ 0 1996........................................................ 0 1997........................................................ 0 1998 (through June 30)...................................... 0
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). S-76 2950 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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........................................................ $3,000 1996........................................................ 3,000 1997........................................................ 2,500 1998 (through June 30)...................................... Not Available
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $107,406 1996........................................... 110,013 1997........................................... 96,770 1998 (through June 30)......................... 58,703
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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stranger's Fees............................................. $ Other....................................................... $
S-77 2951 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 Ravenworth Associates Limited Partnership at December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by Barry S. Fishman & Assoc., independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-78 2952 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Statement of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of June 30, 1998 (unaudited)............................................... F-2 Condensed Statement of Revenue and Expenses -- Income Tax Basis for the six months ended June 30, 1998 (unaudited)............................................... F-3 Condensed Statement of Cash Flows -- Income Tax Basis for the six months ended June 30, 1998 (unaudited)............ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1997 and 1996...................................................... F-8 Statements of Revenue and Expenses -- Income Tax Basis for the years ended December 31, 1997 and 1996................ F-9 Statements of Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1997 and 1996...... F-10 Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1997 and 1996.......................... F-11 Notes to Financial Statements............................... F-12 Independent Auditors' Report................................ F-16 Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1996 and 1995...................................................... F-17 Statements of Revenue and Expenses -- Income Tax Basis for the years ended December 31, 1996 and 1995................ F-18 Statements of Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1996 and 1995...... F-19 Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1996 and 1995.......................... F-20 Notes to Financial Statements............................... F-21
F-1 2953 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP CONDENSED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 531,267 Receivables and Deposits.................................... 99,646 Other Assets................................................ 307,042 Investment Property Land...................................................... 1,000,000 Building and related property............................. 13,185,770 ------------ 14,185,770 Less: Accumulated depreciation............................ (12,556,963) 1,628,807 ------------ ------------ Total Assets:..................................... 2,566,762 ============ LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 103,473 Other Accrued Liabilities................................... 114,842 Property Taxes Payable...................................... 86,910 Tenant Security Deposits.................................... 30,453 Notes Payable............................................... 12,866,682 Partners' Capital........................................... (10,635,598) ------------ Total Liabilities and Partners' Capital........... 2,566,762 ============
F-2 2954 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP CONDENSED STATEMENT OF REVENUE AND EXPENSES -- INCOME TAX BASIS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Revenues: Rental Income............................................. $1,055,795 Other Income.............................................. 104,178 ---------- Total Revenues:................................... 1,159,973 Expenses: Operating Expenses........................................ 386,937 General and Administrative Expenses....................... 58,703 Depreciation Expense...................................... 319,099 Interest Expense.......................................... 512,476 Property Tax Expense...................................... 86,910 ---------- Total Expenses:................................... 1,364,125 ---------- Net Loss.......................................... $ (204,152) ----------
F-3 2955 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP CONDENSED STATEMENT OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Operating Activities: Net (loss)................................................ $(204,152) Adjustments to reconcile net loss to net cash provided by operating Activities: Depreciation and Amortization.......................... 344,999 Changes in accounts: Receivables and deposits and other assets............ (114,029) Accounts Payable and accrued expenses................ 238,198 --------- Net cash provided by (used in) operating activities........................................ 265,016 --------- Investing Activities: Property improvements and replacements.................... (193,452) --------- Net cash provided by (used in) investing activities........................................ (193,452) --------- Financing Activities: Payments on mortgage...................................... (147,319) --------- Net cash provided by (used in) financing activities........................................ (147,319) --------- Net increase (decrease) in cash and cash equivalents....................................... (75,755) Cash and cash equivalents at beginning of year.............. 607,022 --------- Cash and cash equivalents at end of period.................. $ 531,267 =========
F-4 2956 RAVENWORTH ASSOCIATES LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Ravenworth Associates Limited Partnership as of June 30, 1998 and for the six months ended June 30, 1998 have been prepared in accordance with the accounting basis used for Federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis used for Federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 2957 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 F-6 2958 INDEPENDENT AUDITORS' REPORT To the Partners of Ravensworth Associates Limited Partnership We have audited the accompanying balance sheets of Ravensworth Associates Limited Partnership as of December 31, 1997 and 1996, and the related statements of revenue and expenses, changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 2, the Partnership's policy is to prepare its financial statements on the accounting basis used for income tax purposes. Accordingly, the accompanying financial statements are not intended to present financial position and results of operations in conformity with generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ravensworth Associates Limited Partnership as of December 31, 1997 and 1996 and the results of its operations and its cash flows for the years then ended, in conformity with the basis of accounting described in Note 2. /s/ BARRY S. FISHMAN & ASSOCIATES March 29, 1998 F-7 2959 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS DECEMBER 31, 1997 AND 1996 ASSETS
1997 1996 ------------ ------------ Real estate, at cost Land...................................................... $ 1,000,000 $ 1,000,000 Building, improvements and equipment, less accumulated depreciation of $12,237,864 and $11,599,677, respectively........................................... 754,454 1,193,267 Cash........................................................ 578,121 547,609 Tenant accounts receivable.................................. 1,287 2,560 Mortgage escrow deposits.................................... 12,787 13,704 Other receivables........................................... 2,315 500 Tenant security deposits -- funded.......................... 28,901 30,596 Deferred costs, net of accumulated amortization of $60,434 and $8,633, respectively.................................. 302,170 353,971 ------------ ------------ $ 2,680,035 $ 3,142,207 ============ ============ LIABILITIES AND PARTNERS' DEFICIT Liabilities Notes payable............................................. $ 12,932,783 $ 13,056,992 Accounts payable.......................................... 9,382 18,132 Accrued interest expense.................................. 81,218 79,200 Other accrued expenses.................................... 56,489 38,789 Prepaid rent.............................................. 2,708 1,389 Tenant security deposits.................................. 28,901 30,596 ------------ ------------ Total liabilities...................................... 13,111,481 13,225,098 Partners' deficit........................................... (10,431,446) (10,082,891) ------------ ------------ $ 2,680,035 $ 3,142,207 ============ ============
See accompanying notes F-8 2960 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF REVENUE AND EXPENSES -- INCOME TAX BASIS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 ---------- ---------- REVENUE Rental.................................................... $2,168,322 $2,064,880 Interest.................................................. 19,179 36,603 Other income.............................................. 143,205 158,012 ---------- ---------- Total revenue.......................................... 2,330,706 2,259,495 ---------- ---------- OPERATING EXPENSES Administrative and office expenses........................ 73,441 75,718 Insurance................................................. 34,551 33,206 Professional fees......................................... 11,498 10,275 Management fees........................................... 119,689 110,013 Marketing................................................. 45,675 29,181 Payroll costs............................................. 187,976 171,195 Taxes -- real estate...................................... 166,255 164,512 Other taxes and licenses.................................. 5,728 6,628 Repairs and maintenance................................... 97,259 89,482 Utilities................................................. 265,677 256,423 ---------- ---------- Total operating expenses............................... 1,007,749 946,633 ---------- ---------- OTHER EXPENSES Interest.................................................. 981,514 1,225,316 Depreciation.............................................. 638,197 629,205 Amortization.............................................. 51,801 70,633 ---------- ---------- Total other expenses................................... 1,671,512 1,925,154 ---------- ---------- Total expenses....................................... 2,679,261 2,871,787 ---------- ---------- Excess of expenses over revenue............................. $ (348,555) $ (612,292) ========== ==========
See accompanying notes F-9 2961 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
GENERAL LIMITED PARTNERS PARTNERS TOTAL --------- ------------ ------------ Balance, December 31, 1995......................... $(127,523) $ (9,343,076 $ (9,470,599) Excess of expenses over revenue for the year ended December 31, 1996................................ (6,123) (606,169) (612,292) --------- ------------ ------------ Balance, December 31, 1996......................... (133,646) (9,949,245) (10,082,891) Excess of expenses over revenue for the year ended December 31, 1997................................ (3,486) (345,069) (348,555) --------- ------------ ------------ Balance, December 31, 1997......................... $(137,132) $(10,294,314) $(10,431,446) ========= ============ ============
See accompanying notes F-10 2962 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 --------- ------------ Cash flows from operating activities Excess of expenses over revenue........................... $(348,555) $ (612,292) Adjustments to reconcile excess of expenses over revenue to net cash provided by (used in) operating activities............................................. Depreciation.............................................. 638,197 629,205 Amortization.............................................. 51,801 70,634 Changes in assets and liabilities (Increase) in receivables.............................. (542) (5,694) Decrease in mortgage escrow............................ 917 -- Increase (decrease) in accounts payable, accrued expenses and prepaid rent............................. 12,287 1,372,700 (Increase) in tenants' security deposits, net.......... -- (51,756) --------- ------------ Net cash provided by (used in) operating activities.... 354,105 (1,842,603) --------- ------------ Cash flows from investing activities Improvements to property.................................. (199,384) (83,362) Increase in deferred costs................................ -- (362,605) --------- ------------ Net cash (used in) investing activities................ (199,384) (445,967) --------- ------------ Cash flows from financing activities Borrowing of notes payable................................ -- 12,966,882 Repayment of notes payable................................ (124,209) (9,890) Payoff of notes payable................................... -- (11,000,000) --------- ------------ Net cash provided by (used in) financing activities.... (124,209) 1,956,992 --------- ------------ Net increase (decrease) in cash and cash equivalents........ 30,512 (331,578) Cash and cash equivalents, beginning........................ 547,609 879,187 --------- ------------ Cash and cash equivalents, end.............................. $ 578,121 $ 547,609 ========= ============ Supplemental cash flow information: Cash paid for interest.................................... $ 979,496 $ 3,112,998 ========= ============
See accompany notes F-11 2963 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 1. ORGANIZATION Ravensworth Associates Limited Partnership (the "Partnership"), a Massachusetts limited partnership, was organized on July 5, 1983 to acquire, own and operate a nine-story residential apartment complex known as Ravensworth Towers Apartments (the "Property"), located in Annandale, Virginia. The Property consists of approximately six acres of land, 219 apartment units, 350 outdoor parking spaces, an outdoor swimming pool and other recreational facilities. Stephen A. Goldberg ("Goldberg") and Winthrop Northeast Properties, Inc. ("Winthrop Northeast") are the General Partners. Joseph R. Schuble is the Class B Limited Partner and Linnaeus-Phoenix Associates Limited Partnership ("Linnaeus") is the Class C Limited Partner. The Partnership received $400 of capital contributions from the General Partners and the Class B and C Limited Partners. Investor Limited Partners purchased 50 Units of Limited Partnership Interest at $72,960 per Unit. Pursuant to approval of a Recapitalization Proposal by a majority of Class A Limited Partners, Class D Limited Partners were admitted into the Partnership on November 30, 1987. The capital contributions of the Class D Limited Partners totaled $750,000 (of which $705,000 was contributed by Winthrop Northeast) and is being held in a working capital account. The terms of the Class D Units include a special allocation of the first $750,000 of tax losses, a 40% interest in profits and losses thereafter and a 40% interest in cash flow and sale or refinancing proceeds. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying financial statements have been prepared on the accrual basis in accordance with the accounting method used for Federal income tax purposes. Depreciation Depreciation is calculated using the accelerated cost recovery system over 15, 19 and 27.5 year recovery periods for real property, and a 5 or 7 year recovery period for equipment. Amortization Loan costs are being amortized on a straight-line basis over the term of the loan. Income Taxes No provision for income taxes is reflected in the accompanying financial statements of the Partnership. Partners are required to report on their individual tax return their allocable share of income, gains, losses, deductions and credits of the Partnership. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are subject to varying interpretations under Federal and state income tax laws and regulations, an examination of the Partnership's tax returns may lead to adjustments to the amounts reported in the accompanying financial statements. Use of Estimates The preparation of financial statements in conformity with the income tax basis of accounting requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts F-12 2964 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) of revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents The Partnership considers all highly liquid instruments with an initial maturity of six months or less to be cash equivalents for purposes of the statement of cash flows. Accounts Receivable At December 31, 1997, management considers all accounts receivable to be collectible. 3. CONCENTRATION OF RISK During the year, the Partnership, at times, maintained cash balances in excess of the Federally insured maximum of $100,000. Management does not consider the risk to be significant. 4. BUILDING, IMPROVEMENTS AND EQUIPMENT The following schedule summarizes building, improvements and equipment at December 31, 1997 and 1996.
RECOVERY PERIOD 1997 1996 - --------------- ------------ ------------ 15, 19 and 27.5 year property......................... $ 11,850,662 $ 11,735,337 5 and 7 year property................................. 1,141,656 1,057,597 ------------ ------------ 12,992,318 12,792,934 Accumulated depreciation.............................. (12,237,864) (11,599,667) ------------ ------------ $ 754,454 $ 1,193,267 ============ ============
5. NOTES PAYABLE Mortgage Notes In October 1996, the Partnership refinanced its existing debt. The Partnership paid off by means of new financing an $11,000,000 purchase money mortgage note along with accrued interest of $1,966,882. The new financing arrangement consists of a $10,000,000 first mortgage note payable and a $2,966,882 second mortgage note payable. The Partnership incurred loan costs of $362,605. The first mortgage note payable to John Hancock Variable Life Insurance Company bears interest at 8.375% with monthly installments of interest and principle in the amount of $79,682. The loan matures on November 1, 2003. The principal balances at December 31, 1997 and 1996 amounted to $9,865,901 and $9,990,110 respectively. Principal payments for the next five years are as follows:
DECEMBER 31, - ------------ 1998........................................... $135,020 1999........................................... 146,773 2000........................................... 159,549 2001........................................... 173,435 2002........................................... 188,531
F-13 2965 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The second mortgage note payable to Goldberg bears interest at 5% through July 31, 1998 and at 8% until maturity on November 1, 2003. Note Payable to Partner Goldberg has advanced $100,000 to the Partnership. The loan is non-interest bearing and is unsecured. The loan is payable prior to any distributions to any partners of net cash flow, sale or financing proceeds or proceeds upon liquidation of the Partnership. 6. RELATED PARTY TRANSACTIONS Winthrop Northeast, Winthrop Financial Co., Inc. ("Winthrop Financial") and Winthrop Securities Co., Inc. ("Winthrop Securities"), the Selling Agent, are wholly-owned subsidiaries of First Winthrop Corporation ("First Winthrop") which in turn is a wholly-owned subsidiary of Winthrop Financial Associates, A Limited Partnership. Linnaeus, the Class C Limited Partner, is a limited partnership whose general partners are directors of First Winthrop. Winthrop Northeast was paid asset management fees of $2,500 and $3,000 for the years ended December 31, 1997 and 1996 respectively. Winthrop Management, an affiliate of Winthrop Northeast, was paid a management fee at 5% of the gross receipts for the management of the Property. Fees under this agreement totaled $96,770 and $110,013 for the years ended December 31, 1997 and 1996 respectively. Effective October 28, 1997, the Partnership engaged Insignia Residential Group, L.P. to manage the property at the rate of 5% of gross revenues. Fees under this agreement amount to $19,919. Insignia Residential Group, L.P. is a related party through an affiliation with Winthrop Northeast. 7. ALLOCATION OF TAXABLE LOSS Taxable loss for the years ended December 31, 1997 and 1996 are allocated to partners as follows:
TAXABLE LOSS PERCENTAGE OF -------------------- PARTNER TAXABLE LOSS 1997 1996 - ------- ------------- -------- -------- Stephen A. Goldberg -- General Partner............. 0.9% $ 3,137 $ 5,511 Winthrop Northeast -- General Partner.............. 0.1% 349 612 Class A Limited Partners........................... 58.8% 204,950 360,028 Class B Limited Partner............................ 0.1% 349 612 Class C Limited Partner............................ 0.1% 349 612 Class D Limited Partners........................... 40.0% 139,421 244,917 -------- -------- $348,555 $612,292 ======== ========
F-14 2966 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 F-15 2967 INDEPENDENT AUDITORS' REPORT To the Partners of Ravensworth Associates Limited Partnership We have audited the accompanying balance sheets of Ravensworth Associates Limited Partnership as of December 31, 1996 and 1995, and the related statements of revenue and expenses, changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 2, the Partnership's policy is to prepare its financial statements on the accounting basis used for income tax purposes. Accordingly, the accompanying financial statements are not intended to present financial position and results of operations in conformity with generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ravensworth Associates Limited Partnership as of December 31, 1996 and 1995 and the results of its operations and its cash flows for the years then ended, in conformity with the basis of accounting described in Note 2. /s/ BARRY S. FISHMAN & ASSOCIATES February 27, 1997 F-16 2968 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT INCOME TAX BASIS DECEMBER 31, 1996 AND 1995 ASSETS
1996 1995 ------------ ----------- Real estate, at cost Land...................................................... $ 1,000,000 $ 1,000,000 Building, improvements and equipment, less accumulated depreciation of $11,599,667 and $10,970,462, respectively........................................... 1,193,267 1,739,110 Cash........................................................ 440,503 772,081 Other receivables........................................... 16,764 11,070 Security deposits........................................... 137,702 87,893 Deferred costs, net of accumulated amortization of $727,785 and $657,151, respectively.................................... 353,971 62,000 ------------ ----------- Total assets........................................... $ 3,142,207 $ 3,672,154 ============ =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Notes payable............................................. $ 13,056,992 $11,100,000 Accounts payable.......................................... 18,132 16,499 Accrued liabilities....................................... 119,378 1,993,711 Tenants' security deposits................................ 30,596 32,543 ------------ ----------- Total liabilities...................................... 13,225,098 13,142,753 ------------ ----------- Partners' Deficit: Limited partners.......................................... (9,949,245) (9,343,076) General partners.......................................... (133,646) (127,523) ------------ ----------- Total partners' deficit................................ (10,082,891) (9,470,599) Total liabilities and partners' deficit................ $ 3,142,207 $ 3,672,154 ============ ===========
See notes to financial statements F-17 2969 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF REVENUE AND EXPENSES INCOME TAX BASIS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ---------- ---------- REVENUE: Rental income............................................. $2,064,880 $2,006,907 Other income.............................................. 158,012 143,866 Interest income........................................... 36,603 47,996 ---------- ---------- Total revenue.......................................... 2,259,495 2,198,769 ---------- ---------- EXPENSES: Real estate taxes and licenses............................ 171,140 178,554 Interest.................................................. 1,225,316 1,155,000 Payroll and benefits...................................... 171,195 173,965 Management fee............................................ 110,013 110,406 Utilities................................................. 256,423 240,592 Repairs and maintenance................................... 89,482 105,274 Marketing and rental...................................... 29,181 46,114 Insurance................................................. 33,206 55,760 Administration and other.................................. 85,993 39,706 Amortization.............................................. 70,633 24,000 Depreciation.............................................. 629,205 626,994 ---------- ---------- Total expenses......................................... 2,871,787 2,756,365 ---------- ---------- Excess of expenses over revenue............................. $ (612,292) $ (557,596) ========== ==========
See notes to financial statements F-18 2970 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' DEFICIT INCOME TAX BASIS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL LIMITED PARTNERS PARTNERS TOTAL --------- ----------- ------------ Balance, December 31, 1994.......................... $(121,947) $(8,791,056) $ (8,913,003) Excess of expenses over revenue..................... (5,576) (552,020) (557,596) --------- ----------- ------------ Balance, December 31, 1995.......................... (127,523) (9,343,076) (9,470,599) Excess of expenses over revenue..................... (6,123) (606,169) (612,292) --------- ----------- ------------ Balance, December 31, 1996.......................... $(133,646) $(9,949,245) $(10,082,891) ========= =========== ============
See notes to financial statements F-19 2971 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS INCOME TAX BASIS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ------------ ---------- Cash flows from operating activities: Net loss.................................................. $ (612,292) $ (557,596) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation.............................................. 629,205 626,994 Amortization.............................................. 70,634 24,000 Changes in assets and liabilities: (Increase) in other receivables........................ (5,694) (5,315) (Decrease) in accounts payable and accrued expenses.... (1,872,700) (6,461) (Increase) in tenants' security deposits, net.......... (51,756) (51,298) ------------ ---------- Net cash provided/(used in) by operating activities....... (1,842,603) 30,324 ------------ ---------- Cash flows from investing activities: Improvements to property.................................. (83,362) (66,984) Increase in deferred costs................................ (362,605) -- ------------ ---------- Net cash (used) in investing activities................... (445,967) (66,984) ------------ ---------- Cash flows from financing activities: Borrowing of notes payable................................ 12,966,882 -- Repayment of notes payable................................ (9,890) -- Payoff of notes payable................................... (11,000,000) -- ------------ ---------- Net cash provided by financing activities................. 1,956,992 -- ------------ ---------- Net decrease in cash and cash equivalents................... (331,578) (36,660) Cash and cash equivalents, beginning........................ 772,081 808,741 ------------ ---------- Cash and cash equivalents, end.............................. $ 440,503 $ 772,081 ============ ========== Supplemental cash flow information: Cash paid for interest.................................... $ 3,112,998 $1,155,000 ============ ==========
See notes to financial statements F-20 2972 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 1. ORGANIZATION Ravensworth Associates Limited Partnership (the "Partnership"), a Massachusetts limited partnership was organized on July 5, 1983 to acquire, own and operate a nine-story residential apartment complex known as Ravensworth Towers Apartments (the "Property"), located in Annandale, Virginia. The Property consists of approximately six acres of land, 219 apartment units, 350 outdoor parking spaces, an outdoor swimming pool and other recreational facilities. Stephen A. Goldberg ("Goldberg") and Winthrop Northeast Properties, Inc. ("Winthrop Northeast") are the General Partners, Joseph R. Schuble is the Class B Limited Partner and Linnaeus-Phoenix Associates Limited Partnership ("Linnaeus") is the Class C Limited Partner. The Partnership received $400 of capital contributions from the General Partners and the Class B and C Limited Partners. Investor Limited Partners purchased 50 Units of Limited Partnership Interest at $72,960 per Unit. Pursuant to approval of a Recapitalization Proposal by a majority of Class A Limited Partners, Class D Limited Partners were admitted into the Partnership on November 30, 1987. The capital contributions of the Class D Limited Partners totaled $750,000 (of which $705,000 was contributed by Winthrop Northeast) and is being held in a working capital account. The terms of the Class D Units include a special allocation of the first $750,000 of tax losses, a 40% interest in profits and losses thereafter and a 40% interest in cash flow and sale or refinancing proceeds. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying financial statements have been prepared on the accrual basis in accordance with the accounting method used for Federal income tax purposes. Depreciation Depreciation is calculated using the accelerated cost recovery system over 15, 19 and 27.5 year recovery periods for real property, and a 5 or 7 year recovery period for equipment. Income Taxes No provision for income taxes is reflected in the accompanying financial statements of the Partnership. Partners are required to report on their individual tax return their allocable share of income, gains, losses, deductions and credits of the Partnership. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are subject to varying interpretations under Federal and state income tax laws and regulations, an examination of the Partnership's tax returns may lead to adjustments to the amounts reported in the accompanying financial statements. F-21 2973 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. DEFERRED COSTS Deferred costs as of December 31, 1996 and 1995 are as follows:
AMORTIZATION PERIOD 1996 1995 ------------ ------------ ------------ Organization costs....................... 60 months $ 170,000 $ 170,000 Bank loan costs.......................... 56 months 35,000 35,000 Interest guarantee fee................... 56 months 80,000 80,000 Mortgage loan costs...................... 180 months 360,000 360,000 MGIC fee................................. 56 months 74,151 74,151 Mortgage refinancing costs............... 84 months 362,605 -- ------------ ------------ 1,081,756 719,151 Less: Accumulated amortization........... (727,785) (657,151) ------------ ------------ Unamortized costs........................ $ 353,971 $ 62,000 ============ ============
4. BUILDING, IMPROVEMENTS AND EQUIPMENT The following schedule summarizes building, improvements and equipment at December 31, 1996 and 1995:
RECOVERY PERIOD 1996 1995 --------------- ------------ ------------ 15, 19 and 27.5 year property........................... $ 11,735,337 $ 11,726,174 5 and 7 year property................................... 1,057,597 983,398 ------------ ------------ 12,792,934 12,709,572 Accumulated depreciation................................ (11,599,667) (10,970,462) ------------ ------------ $ 1,193,267 $ 1,739,110 ============ ============
5. NOTES PAYABLE Mortgage Notes In October, 1996, the Partnership refinanced its existing debt. The Partnership paid off by means of new financing an $11,000,000 purchase money mortgage note along with accrued interest of $1,966,882. The new financing arrangement consists of a $10,000,000 first mortgage note payable and a $2,966,882 second mortgage note payable. The Partnership incurred loan costs of $362,605. The first mortgage note payable with John Hancock Variable Life Insurance Company bears interest at 8.375% with monthly installments of interest and principle in the amount of $79,682. The loan matures on November 1, 2003. The second mortgage note payable to Stephen A. Goldberg bears interest at 5% through July 31, 1998 and at 8% until maturity on November 1, 2003. Note Payable to Partner Stephen A. Goldberg, a general partner, has advanced $100,000 to the Partnership. The loan is non-interest bearing and is secured by the assets of the Partnership. The loan is payable prior to any distributions to any partners of net cash flow, sale or financing proceeds or proceeds upon liquidation of the Partnership. F-22 2974 RAVENSWORTH ASSOCIATES LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. RELATED PARTY TRANSACTIONS Winthrop Northeast, Winthrop Financial Co., Inc. ("Winthrop Financial") and Winthrop Securities Co., Inc. ("Winthrop Securities"), the Selling Agent, are wholly-owned subsidiaries of First Winthrop Corporation ("First Winthrop") which in turn is a wholly-owned subsidiary of Winthrop Financial Associates, A Limited Partnership, a Maryland public limited partnership. Linnaeus, the Class C Limited Partner, is a limited partnership whose general partners are directors of First Winthrop. Winthrop Northeast is entitled to an annual property asset management fee. For each of the years ended December 31, 1996 and 1995, Winthrop Northeast was paid $3,000 in annual asset management fees. Winthrop Management, an affiliate of the general partner, is entitled to a management fee currently 5% of the gross receipts for the management of the Property. Fees under this agreement totaled $110,013 and $107,406 for the years ended December 31, 1996 and 1995, respectively. 7. ALLOCATION OF TAXABLE LOSS Taxable loss for the years ended December 31, 1996 and 1995 are allocated to each partner as follows:
TAXABLE LOSS PERCENTAGE OF -------------------- PARTNER TAXABLE LOSS 1996 1995 - ------- ------------- -------- -------- Stephen A. Goldberg -- General Partner............. 0.9% $ 5,511 $ 5,018 Winthrop Northeast -- General Partner.............. 0.1 612 558 Class A Limited Partners........................... 58.8 360,028 327,866 Class B Limited Partner............................ 0.1 612 558 Class C Limited Partner............................ 0.1 612 558 Class D Limited Partners........................... 40.0 244,917 223,038 -------- -------- $612,292 $557,096 ======== ========
F-23 2975 APPENDIX A-1 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 consideration 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 Consideration." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Consideration 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 2976 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 2977 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 Consideration or the method of determining the Offer Consideration 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 consideration 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 Consideration 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 Consideration 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 Consideration 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 September , 1998 A-3 2978 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF RIVERCREEK APARTMENTS 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 2979 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-13 Certain Federal Income Tax Matters........... S-15 Valuation of Units........................... S-15 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 Rivercreek Apartments 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 2980
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 2981 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 Rivercreek Apartments 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 $3,972, total debt of $1,626 and stockholders' equity of $1,844. 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 2982 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)............................... $ $ $ -- $ -- Third Quarter.......................... 41 30 15/16 -- -- 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 2983 - 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 the 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 $12,166.66 per unit for the six months ended June 30, 1998 (equivalent to $24,333.32 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 distributions of $ 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 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 2984 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 2985 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 100% of 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? 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: 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 2986 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 2987 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. 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. 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 5 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. 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 S-7 2988 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 2989 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 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 S-9 2990 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 2991 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, 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. 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 S-11 2992 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 0% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 2993 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. 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 S-13 2994 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 S-14 2995 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 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 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 the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your S-15 2996 partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 own 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. S-16 2997 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, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 is not subject to such limitations. 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 2998 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 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 generated in that capacity. The property manager received management fees of $57,000 in 1996, $56,000 in 1997 and $28,585 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 Your Partnership and its Property. Rivercreek Apartments Limited Partnership is a South Carolina limited partnership which was formed on December 26, 1979 for the purpose of owning and operating a single apartment property located in Augusta, Georgia, known as "Rivercreek Apartments". In 1979, it completed a private placement of units that raised net proceeds of approximately $1,560,000. Rivercreek Apartments consists of 234 apartment units. Your partnership has no employees. Property Management. Since December 1990, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2019, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. S-18 2999 Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,784,998, payable to MBL Life Assurance Corp., which bears interest at a rate of 7.25%. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 3000 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 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 3001
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 3002 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 3003
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 3004 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 3005 SUMMARY FINANCIAL INFORMATION OF RIVERCREEK APARTMENTS LIMITED PARTNERSHIP The summary financial information of Rivercreek Apartments Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Rivercreek Apartments 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 of Your Partnership" included herein. See "Index to Financial Statements." RIVERCREEK APARTMENTS LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (1) (1) (1) (1) (1) (1) (1) Operating Data: Total Revenues........... $557,323.... $ 525,722 $ 1,145,000 $ 1,159,000 $ 1,151,094 $ 1,153,766 $ 1,094,794 Net Income/(Loss)........ 110,726.... (12,118) (144,000) (38,000) 61,584 23,074 (10,254) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation................. 1,590,740.. 1,620,542 1,612,000 1,588,000 1,526,867 1,502,102 1,573,344 Total Assets............. 2,339,834.. 2,004,120 2,596,000 2,023,000 2,062,512 2,040,818 2,023,104 Mortgage Notes Payable, including Accrued Interest... 3,784,998.. 3,045,178 3,800,000 3,059,000 3,057,889 3,080,982 3,101,415 Partners' Capital/(Deficit).... $(1,498,541) $(1,112,589) $(1,244,000) $(1,100,000) $(1,059,900) $(1,120,553) $(1,143,627)
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 YOUR 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 $12,166.66 $0.00
- --------------- (1) Information prepared on a Federal Income Tax Basis. S-25 3006 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. 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 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 price 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 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. S-26 3007 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 Code. 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 therefore 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 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. 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 S-27 3008 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 $12,166.66 per unit (equivalent to $24,333.32 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 an 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 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. 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. S-28 3009 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 3010 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. S-30 3011 - 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 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 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 3012 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 3013 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 3014 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. 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. S-34 3015 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." 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. 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. S-35 3016 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, (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 9:00 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 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, Denver, Colorado time. S-36 3017 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 3018 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. 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 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 S-38 3019 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 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 S-39 3020 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 3021 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. 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. 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-41 3022 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-42 3023 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 payment. 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 OP Units and any such S-43 3024 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-44 3025 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-45 3026 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-46 3027 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-47 3028 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-48 3029 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-49 3030 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 3031 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-51 3032 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 3033 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 3034 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 3035 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 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, a third party expert, 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 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, 1998 were $12,166.66 (equivalent to $24,333.32 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-55 3036 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-56 3037 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. 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-57 3038 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-58 3039 performed a site inspection 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 September 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 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 property was 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 S-59 3040 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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 S-60 3041 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. 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 South Carolina law for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Rivercreek Apartments. 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, 2019. 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 the land The purpose of the AIMCO Operating Partnership is to and construct your partnership's property for conduct any business that may be lawfully conducted by investment and to hold your partnership's property for a limited partnership organized pursuant to the capital appreciation and the production of income. Delaware Revised Uniform Limited Partnership Act (as Subject 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"), do all things necessary for or incidental to the provided that such business is to be conducted in a protection and benefit of your partnership, including, manner that permits AIMCO to be qualified as a REIT, borrowing funds 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,
S-61 3042 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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.
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 units for cash and time to the limited partners and to other persons, and notes 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. 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 The general partner of your partnership may not enter The AIMCO Operating Partnership may lend or contribute into agreements with themselves or any of its funds or other assets to its subsidiaries or other affiliates, other than those set forth in your persons in which it has an equity investment, and such partnership's agreement of limited partnership. persons may borrow funds from the AIMCO Operating However, the general partner may, and in certain Partnership, on terms and conditions established in the circumstances are required, lend such money to your sole and absolute discretion of the general partner. To partnership as they, in their sole discretion, deem the extent consistent with the business purpose of the necessary for the payment of any partnership AIMCO Operating Partnership and the permitted obligations and expenses. Such loans will be repaid activities of the general partner, the AIMCO Operating with interest at a rate the lesser of 10 5/8% per annum Partnership may transfer assets to joint ventures, or 1% per annum over the then prevailing prime rate of limited liability companies, partnerships, Citibank, N.A., New York, New York, but in no event to corporations, business trusts or other business exceed the maximum rate, prior to distributions to the entities in which it is or thereby becomes a limited partners, only from available funds. 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 Subject to obtaining prior written approval from the The AIMCO Operating Partnership Agreement contains no limited partners owning more than 50% of the restrictions on borrowings, and the general partner has outstanding units, the general partner of your full power and authority to borrow money on behalf of partnership is authorized to borrow money and if the AIMCO Operating Partnership. The AIMCO Operating security is required therefore, to mortgage or subject Partnership has credit agreements that restrict, among to any other security device any portion of your other things, its ability to incur indebtedness. See partnership's property or other partnership assets, as "Risk Factors -- Risks of Significant Indebtedness" in the general partner deems, in their sole discretion, to the accompanying Prospectus. be in the best interests of your partnership.
S-62 3043 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 the limited partners or their duly authorized with a statement of the purpose of such demand and at representative to review the books and records of your such OP Unitholder's own expense, to obtain a current partnership upon reasonable notice at reasonable times list of the name and last known business, residence or at the location where such records are kept by your mailing address of the general partner and each other partnership. OP Unitholder.
Management Control The general partner of your partnership is solely All management powers over the business and affairs of responsible for the management of your partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business and has all rights and powers generally Inc., which is the general partner. No OP Unitholder conferred by law or necessary, advisable or consistent has any right to participate in or exercise control or in connection therewith. No limited partner may take management power over the business and affairs of the part in or interfere in any manner with the conduct or AIMCO Operating Partnership. The OP Unitholders have control of the business of your partnership and no the right to vote on certain matters described under limited partner has the right or authority to act for "Comparison of Ownership of Your Units and AIMCO OP or bind your partnership. 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 to your partnership partner is not liable to the AIMCO Operating or the limited partners for any loss or damage Partnership for losses sustained, liabilities incurred resulting from any act or omission performed or omitted or benefits not derived as a result of errors in in good faith, pursuant to the authority granted to judgment or mistakes of fact or law of any act or them to promote the interests of your partnership. omission if the general partner acted in good faith. Moreover, the general partner is not liable to your The AIMCO Operating Partnership Agreement provides for partnership or the limited partners because any taxing indemnification of AIMCO, or any director or officer of authorities disallow or adjust any deductions or AIMCO (in its capacity as the previous general partner credits in your partnership income tax returns. In of the AIMCO Operating Partnership), the general addition, your partnership will also indemnify the partner, any officer or director of general partner or general partner and its affiliates against any loss, the AIMCO Operating Partnership and such other persons expense, liability, action or damage resulting from any as the general partner may designate from and against act or omission performed or omitted in good faith, all losses, claims, damages, liabilities, joint or pursuant to the authority granted to them to promote several, expenses (including legal fees), fines, the interests of your partnership if any court settlements and other amounts incurred in connection determines that such conduct merits indemnity. 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
S-63 3044 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 holding 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 resign at any time provided that such resignation AIMCO Operating Partnership by the OP Unitholders with does not cause and accelerate of specified loans and or without cause. Under the AIMCO Operating Partnership sixty days prior to the effective date of such Agreement, the general partner may, in its sole resignation such general partner nominates as a discretion, prevent a transferee of an OP Unit from substitute general partner a willing person or entity becoming a substituted limited partner pursuant to the who meets the requirements of the tax laws and is AIMCO Operating Partnership Agreement. The general acceptable to the limited partners. A limited partners partner may exercise this right of approval to deter, may not transfer its units without the consent of the delay or hamper attempts by persons to acquire a general partner. 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 Amendments to your partnership's agreement of limited With the exception of certain circumstances set forth partnership may be proposed by the general partners of in the AIMCO Operating Partnership Agreement, whereby your partnership or by limited partners owning at least the general partner may, without the consent of the OP 20% of the then outstanding limited partnership Unitholders, amend the AIMCO Operating Partnership interests. Approval by a majority of the then Agreement, amendments to the AIMCO Operating outstanding limited partnership interests is necessary Partnership Agreement require the consent of the to effect an amendment to your partnership's agreement holders of a majority of the outstanding Common OP of limited partnership. The general partner may amend Units, excluding AIMCO and certain other limited your partnership's agreement of limited partnership exclusions (a "Majority in Interest"). Amendments to from time to time to effect changes of a ministerial the AIMCO Operating Partnership Agreement may be nature which do not materially and adversely affect the proposed by the general partner or by holders of a rights of the limited partners. Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to compensation for additional services nership is responsible for all expenses incurred rendered. 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-64 3045 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors No limited partner is personally liable for any of the Except for fraud, willful misconduct or gross debts of your partnership or any of the losses thereof negligence, no OP Unitholder has personal liability for beyond the amount of his capital contribution to your the AIMCO Operating Partnership's debts and partnership, plus an amount equal to its share of obligations, and liability of the OP Unitholders for undistributed profits of your partnership. When and if the AIMCO Operating Partnership's debts and obligations a limited partner has rightfully received the return in is generally limited to the amount of their invest- whole or in part of its contribution to capital, it may ment in the AIMCO Operating Partnership. However, the nevertheless be liable to your partnership for any sum, limitations on the liability of limited partners for not in excess of such return with interest necessary to the obligations of a limited partnership have not been discharge your partnership's liabilities to all clearly established in some states. If it were creditors who extend credit or whose claims arose determined that the AIMCO Operating Partnership had before such return. 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 has an Unless otherwise provided for in the relevant overriding fiduciary responsibility. However, the partnership agreement, Delaware law generally requires general partner is not required to devote all of its a general partner of a Delaware limited partnership to time of business efforts to the affairs of your adhere to fiduciary duty standards under which it owes partnership, but must devote so much of its time and its limited partners the highest duties of good faith, attention to your partnership as is necessary and fairness and loyalty and which generally prohibit such advisable to successfully manage the affairs of your general partner from taking any action or engaging in partnership. In addition, any partner or its affiliates any transaction as to which it has a conflict of may engage in or hold interests in other business interest. The AIMCO Operating Partnership Agreement ventures of every kind and description, including expressly authorizes the general partner to enter into, ventures in competition with your partnership, in which on behalf of the AIMCO Operating Partnership, a right neither your partnership nor any limited partners will of first opportunity arrangement and other conflict have any interest. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 3046 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 Nature of Investment YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS 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, the applicable law or in the AIMCO ship Agreement, the OP Unitholders approval of holders of a majority Operating Partnership Agreement, have voting rights only with of the outstanding units is the holders of the Preferred OP respect to certain limited matters required to borrow money, to sell Units will have the same voting such as certain amendments and or otherwise dispose of your rights as holders of the Common OP termination of the AIMCO Operating partnership's property, to amend Units. See "Description of OP Partnership Agreement and certain your partnership's agreement of Units" in the accompanying transactions such as the limited partnership except in Prospectus. So long as any institution of bankruptcy limited circumstances, to terminate Preferred OP Units are outstand- proceedings, an assignment for the your partnership, to remove a ing, in addition to any other vote benefit of creditors and certain general partner and to elect a or consent of partners required by transfers by the general partner of trustee to liquidate and distribute law or by the AIMCO Operating its interest in the AIMCO Operating assets if necessary. Partnership Agree- Part-
S-66 3047 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS A general partner may cause the ment, the affirmative vote or nership or the admission of a dissolution of your partnership by consent of holders of at least 50% successor general partner. retiring unless, the remaining of the outstanding Preferred OP general partner, or if none, all of Units will be necessary for Under the AIMCO Operating Partner- the limited partners agree to con- effecting any amendment of any of ship Agreement, the general partner tinue the business and elect a the provisions of the Partnership has the power to effect the successor general partner. Unit Designation of the Preferred acquisition, sale, transfer, OP Units that materially and exchange or other disposition of 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- Distributions of Net Cash From $ per Preferred OP Unit; tribute quarterly all, or such Operations are disbursed not less provided, however, that at any time portion as the general partner may often then quarterly with respect and from time to time on or after in its sole and absolute discretion to each calendar year. Your part- the fifth anniversary of the issue determine, of Available Cash (as nership has made distributions in date of the Preferred OP Units, the defined in the AIMCO Operating the past and is projected to made AIMCO Operating Partnership may Partnership Agreement) generated by distributions in 1998. 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-67 3048 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 his There is no public market for the There is no public market for the limited partnership interest to any Preferred OP Units and the OP Units. The AIMCO Operating Part- person provided that: (1) such Preferred OP Units are not listed nership Agreement restricts the transfer is not in contravention of on any securities exchange. The transferability of the OP Units. any applicable law or your Preferred OP Units are subject to Until the expiration of one year partnership's agreement of limited restrictions on transfer as set from the date on which an OP partnership, (ii) a duly executed forth in the AIMCO Operating Unitholder acquired OP Units, and acknowledged assignment has Partnership Agreement. subject to certain exceptions, such been approved by the general OP Unitholder may not transfer all partner and (iii) the transferee Pursuant to the AIMCO Operating or any portion of its OP Units to represents in writing that it sat- Partnership Agreement, until the any transferee without the consent isfies the suitability requirements expiration of one year from the of the general partner, which for limited partners. However, no date on which a holder of Preferred consent may be withheld in its sole transfer may occur if in light of OP Units acquired Preferred OP and absolute discretion. After the the total of all transfers sold or Units, subject to certain expiration of one year, such OP exchanged within the period of exceptions, such holder of Unitholder has the right to twelve consecutive months prior Preferred OP Units may not transfer transfer all or any portion of its there, there might result a all or any portion of its Pre- OP Units to any person, subject to termination of your partnership for ferred OP Units to any transferee the satisfaction of certain tax purposes in the opinion of without the consent of the general conditions specified in the AIMCO counsel. In order for a transferee partner, which consent may be Operating Partnership Agreement, to be substituted as a limited withheld in its sole and absolute including the general partner's partner, in addition to the above discretion. After the expiration of right of first refusal. See requirements: (1) the assignee must one year, such holders of Preferred "Description of OP Units -- execute an irrevocable power of OP Units has the right to transfer Transfers and Withdrawals" in the attorney appointing the general all or any portion of its Preferred accompanying Prospectus. partner as the assignee's OP Units to any person, subject to attorney-in-fact, (2) a transfer the satisfaction of certain After the first anniversary of fee must be paid, (3) the conditions specified in the becoming a
S-68 3049 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS interest transferred must not be AIMCO Operating Partnership Agree- holder of Common OP Units, an OP less than one unit or such lesser ment, including the general Unitholder has the right, subject amount as the assignor owned and partner's right of first refusal. to the terms and conditions of the (4) such other conditions as are AIMCO Operating Partnership set forth in your partnership's After a one-year holding period, a Agreement, to require the AIMCO agreement of limited partnership holder may redeem Preferred OP Operating Partnership to redeem all must be fulfilled. Units and receive in exchange or a portion of the Common OP Units There are no redemption rights therefor, at the AIMCO Operating held by such party in exchange for associated with your units. Partnership's option, (i) subject a 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 3050 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 from your partnership but may receive reimbursement for expenses generated in that capacity which received management fees of 57,000 in 1996, 56,000 in 1997 and 28,585 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's 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'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 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-70 3051 YOUR PARTNERSHIP GENERAL Rivercreek Apartments Limited Partnership is a South Carolina limited partnership which raised net proceeds of approximately $1,560,000 in 1979 through a private offering. The promoter for the private offering of your partnership was U.S. Shelter Corporation and N. Barton Tuck, Jr. Insignia acquired your partnership in December 1990. AIMCO acquired Insignia in October, 1998. There are currently a total of 31 limited partners of your partnership and a total of 30 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on December 26, 1979 for the purpose of owning and operating a single apartment property located in Augusta, Georgia, known as "Rivercreek Apartments." Your partnership's property consists of 234 apartment units. There are 112 one-bedroom apartments and 122 two-bedroom apartments. The total rentable square footage of your partnership's property is 160,804 square feet. Your partnership's property had an average occupancy rate of approximately 91.52% in 1996 and 91.52% in 1997. The average annual rent per apartment unit is approximately $4,701. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1990, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $57,000, $56,000 and $28,585, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2019 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 3052 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,784,998, payable to MBL Life Assurance Corp., which bears interest at a rate of 7.25%. The mortgage debt is due in January 2008. [SECOND MORTGAGE] Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 3053 Below is selected financial information for Rivercreek Apartments Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
RIVERCREEK APARTMENTS LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- 6/30/98 6/30/97 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (1) (1) (1) (1) (1) (1) (1) BALANCE SHEET DATA Cash and Cash Equivalents....... $ 357,603 $ 88,059 $ 599,000 $ 176,000 $ 309,692 $ 319,935 $ 232,771 Land & Building................. 4,715,517 4,619,451 4,674,000 4,524,000 4,336,418 4,186,795 4,129,056 Accumulated Depreciation........ (3,124,777) (2,998,909) (3,062,000) (2,936,000) (2,809,551) (2,684,693) (2,555,712) Other Assets.................... 391,491 295,519 385,000 259,000 225,953 218,781 216,989 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets............ $ 2,339,834 $ 2,004,120 $ 2,596,000 $ 2,023,000 $ 2,062,512 $ 2,040,818 $ 2,023,104 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest..... $ 3,784,998 $ 3,045,178 $ 3,800,000 $ 3,059,000 $ 3,057,889 $ 3,080,982 $ 3,101,415 Other Liabilities............... 53,377 71,531 40,000 64,000 64,523 80,389 65,316 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities....... 3,838,375 3,116,709 3,840,000 3,123,000 3,122,412 3,161,371 3,166,731 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)...... $(1,498,541) $(1,112,589) $(1,244,000) $(1,100,000) $(1,059,900) $(1,120,553) $(1,143,627) =========== =========== =========== =========== =========== =========== ===========
RIVERCREEK APARTMENTS LIMITED PARTNERSHIP ---------------------------------------------------------------------------------------- 6/30/98 6/30/97 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (1) (1) (1) (1) (1) (1) (1) STATEMENT OF OPERATIONS DATA Rental Revenue......................... $ 529,598 $ 470,308 $1,083,000 $1,064,000 $1,079,530 $1,088,406 $1,011,508 Other Income........................... 27,725 55,413 62,000 95,000 71,564 65,360 83,286 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue.................. 557,323 525,722 1,145,000 1,159,000 1,151,094 1,153,766 1,094,794 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses..................... 199,919 236,181 664,000 702,000 593,307 589,052 489,488 General & Administrative............... 44,412 54,034 125,000 42,182 83,993 Depreciation........................... 63,000 63,000 126,000 126,000 124,858 128,980 130,331 Interest Expense....................... 114,611 160,782 327,000 324,000 326,047 328,727 358,118 Property Taxes......................... 24,655 23,842 47,000 45,000 45,298 41,751 43,118 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses................. 446,597 537,839 1,289,000 1,197,000 1,089,510 1,130,692 1,105,048 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income............................. $ 110,726 $ (12,118) $ (144,000) $ (38,000) $ 61,584 $ 23,074 $ (10,254) ========== ========== ========== ========== ========== ========== ==========
- --------------- (1) Information prepared on a Federal Income Tax Basis S-73 3054 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $110,726 for the six months ended June 30, 1998, compared to a net loss of $12,118 for the six months ended June 30, 1997. The increase in net income of $122,844, or 1013.73% was primarily the result of increased revenues and decreased operating and interest expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $557,323 for the six months ended June 30, 1998, compared to $525,722 for the six months ended June 30, 1997, an increase of $31,601, or 6.01%. This was primarily a result of a increase in rental rates and occupancy levels. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $199,919 for the six months ended June 30, 1998, compared to $236,181 for the six months ended June 30, 1997, a decrease of $36,262 or 15.35%. This decrease was primarily the result of an increase in landscaping, marketing and repairs. Management expenses totaled $28,585 for the six months ended June 30, 1998, compared to $27,422 for the six months ended June 30, 1997, an increase of $1,163, or 4.24%. General and Administrative Expenses General and administrative expenses totaled $44,412 for the six months ended June 30, 1998 compared to $54,034 for the six months ended June 30, 1997, an decrease of $9,622 or 17.81%. The decrease was primarily due to a decrease in professional fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $114,611 for the six months ended June 30, 1998, compared to $160,782 for the six months ended June 30, 1997, a decrease of $46,171, or 28.72%. This decrease is due to the partnership refinancing the mortgage in December of 1997 at a lower interest rate. S-74 3055 Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $144,000 for the year ended December 31, 1997, compared to a loss of $38,000 for the year ended December 31, 1996. The decrease in net income of $106,000, or 278.95% was primarily the result of decreased revenues due to lower occupancy levels and increased expenses due to mortgage refinancing costs. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,145,000 for the year ended December 31, 1997, compared to $1,159,000 for the year ended December 31, 1996, a decrease of $14,000, or 1.21%. This increase was primarily the result of an increase in occupancy Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $664,000 for the year ended December 31, 1997, compared to $702,000 for the year ended December 31, 1996, a decrease of $38,000 or 5.41%. The decrease is a result of fewer costs associated with property improvements. Management expenses totaled $56,000 for the year ended December 31, 1997 compared to $57,000 for the year ended December 31, 1996. A difference of $1,000, or 1.75%. General and Administrative Expenses General and administrative expenses totaled $125,000 for the year ended December 31, 1997 compared to $0 for the year ended December 31, 1996, an increase of $125,000 or 100%. The increase is due to a refinancing fee. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $327,000 for the year ended December 31, 1997, compared to $324,000 for the year ended December 31, 1996, an increase of $3,000, or 0.93%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net loss of $38,000 for the year ended December 31, 1997, compared to net income $61,584 for the year ended December 31, 1995. The difference of $99,584, or 161.70% was primarily the result of an increase in operating expenses offset by an increase in revenue. Revenues Rental and other property revenues from the partnership's property totaled $1,159,000 for the year ended December 31, 1996, compared to $1,151,094 for the year ended December 31, 1995, an increase of $7,906, or 0.69%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $702,000 for the year ended December 31, 1996, compared to $593,307 for the year ended December 31, 1995, an increase of $108,693 or 18.32%. The increase is a result of exterminating and grounds supplies expenses. Management expenses totaled $57,000 for the year ended December 31, 1996, compared to $57,055 for the year ended December 31, 1995, a decrease of $55, or 0.10%. S-75 3056 General and Administrative Expenses General and administrative expenses totaled $0 for the year ended December 31, 1996 compared to $0 for the year ended December 31, 1995, an increase of $0 or 0%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $324,000 for the year ended December 31, 1996, compared to $326,047 for the year ended December 31, 1995, a decrease of $2,047, or 0.63%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $357,603 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 partners of your partnership and their affiliates are not liable to your partnership or the limited partners for any loss or damage resulting from any act or omission performed or omitted in good faith, pursuant to the authority granted to them to promote the interests of your partnership. Moreover, the general partners are not liable to your partnership or the limited partners because any taxing authorities disallow or adjust any deductions or credits in your partnership income tax returns. 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 owned by AIMCO. See "Conflicts of Interest". Your partnership will also indemnify the general partners and their affiliates against any loss, expense, liability, action or damage resulting from any act or omission performed or omitted in good faith, pursuant to the authority granted to them to promote the interests of your partnership if any court determines that such conduct merits indemnity. 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. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $31,200.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 0.00 1995........................................................ 30.72 1996........................................................ 66.00 1997........................................................ 0.00 1998 (through June 30)...................................... 12,166.66
S-76 3057 Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions (i.e., excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0.00% 0 1995......................... 1 3.33% 1 1996......................... 0 0.00% 0 1997......................... 0 0.00% 0 1998 (through June 30)....... 0 0.00% 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner interest from your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $12,576 1995........................................................ 6,732 1996........................................................ 17 1997........................................................ 15,009 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $57,055 1996........................................... 57,000 1997........................................... 56,000 1998 (through June 30)......................... 28,585
S-77 3058 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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 audited financial statements of Rivercreek Apartments Limited Partnership at December 31, 1997, December 31, 1996 and December 31, 1995, and for each of the years then ended, appearing in this Prospectus Supplement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-78 3059 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1997 TABLE OF CONTENTS
PAGE ---- Condensed Balance Sheet -- Federal Income Tax Basis as of June 30, 1998 (Unaudited)................................. F-2 Condensed Statements of Operations -- Federal Income Tax Basis for the six months ended June 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Statements of Cash Flows -- Federal Income Tax Basis for the six months ended June 30, 1998 and 1997 (Unaudited)............................................... F-4 Notes to Financial Statements -- Federal Income Tax Basis... F-5 Independent Auditors' Report................................ F-6 Balance Sheet as of December 31, 1997....................... F-7 Statement of Operations for the year ended December 31, 1997...................................................... F-8 Statement of Partners' (Deficit)/Capital for the year ended December 31, 1997......................................... F-9 Statement of Cash Flows for the year ended December 31, 1997...................................................... F-10 Notes to Financial Statements............................... F-11 Independent Auditors' Report................................ F-16 Statement of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis as of 12/31/97.................................................. F-17 Statement of Revenues, Expenses and Changes in Partners' Deficit -- Federal Income Tax Basis for the year ended December 31, 1997...................... F-18 Notes to Financial Statements -- Federal Income Tax Basis... F-19 Independent Auditors' Report................................ F-22 Statement of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis as of December 31, 1996...................................................... F-23 Statement of Revenues, Expenses and Changes in Partners' Deficit -- Federal Income Tax Basis for the year ended December 31, 1996...................... F-24 Notes to Financial Statements -- Federal Income Tax Basis... F-25 Independent Auditors' Report................................ F-28 Statement of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis as of December 31, 1995...................................................... F-29 Statement of Revenues, Expenses and Changes in Partners' Deficit -- Federal Income Tax Basis for the year ended December 31, 1995...................... F-30 Notes to Financial Statements -- Federal Income Tax Basis... F-31
F-1 3060 RIVERCREEK APARTMENTS CONDENSED BALANCE SHEET FEDERAL INCOME TAX BASIS JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 357,602 Receivables and Deposits.................................... 35,198 Restricted Escrows.......................................... 47,400 Syndication Fees............................................ -- Other Assets................................................ 308,894 Investment Property: Land...................................................... 321,687 Building and related personal property.................... 4,393,830 ----------- 4,715,517 Less: Accumulated depreciation............................ (3,124,777) 1,590,740 ----------- ----------- Total Assets...................................... $ 2,339,834 =========== LIABILITIES AND PARTNERS' CAPITAL: Accounts payable............................................ $ -- Other Accrued Liabilities................................... 53,377 Property taxes payable...................................... -- Tenant security deposits.................................... -- Notes Payable............................................... 3,784,998 Partners' Capital........................................... (1,498,541) ----------- Total Liabilities and Partners' Capital........... $ 2,339,834 ===========
F-2 3061 RIVERCREEK APARTMENTS CONDENSED STATEMENTS OF OPERATIONS FEDERAL INCOME TAX BASIS
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- (UNAUDITED) Revenues: Rental Income............................................. $529,598 $470,308 Other Income.............................................. 27,725 55,413 Gain (Loss) on Disp of Property........................... -- -- Casualty Gain/Loss........................................ -- -- -------- -------- Total Revenues.................................... 557,323 525,721 Expenses: Operating Expenses........................................ 199,919 236,181 General and Administrative Expenses....................... 44,412 54,034 Depreciation Expense...................................... 63,000 63,000 Interest Expense.......................................... 114,611 160,782 Property Tax Expense...................................... 24,655 23,842 -------- -------- Total Expenses.................................... 446,597 537,839 Income (Loss) from Operations............................... 110,726 (12,118) Extraord. Gain on Early Exting. of Debt..................... -- -- Loss on Sale of Invest. Property -- -- Casualty Gain............................................... -- -- -------- -------- Net Income (Loss)................................. $110,726 $(12,118) ======== ========
F-3 3062 RIVERCREEK APARTMENTS CONDENSED STATEMENTS OF CASH FLOWS FEDERAL INCOME TAX BASIS
SIX MONTHS ENDED JUNE 30, -------------------- 1998 1997 --------- -------- (UNAUDITED) Operating Activities: Net Income (loss)......................................... $ 110,726 $(12,118) Adjustments to reconcile net income (loss) to net cash provided by operating Activities:...................... -- -- Depreciation and Amortization............................. 63,000 63,000 Loss on Casualty event.................................... -- -- Extraordinary loss on refinancing......................... -- -- Changes in accounts:...................................... -- -- Receivables and deposits and other assets.............. 15,908 (36,519) Accounts Payable and accrued expenses.................. 13,377 7,531 --------- -------- Net cash provided by (used in) operating activities...................................... 203,011 21,894 --------- -------- Investing Activities Property improvements and replacements.................... (41,740) (95,542) Property improvements -- Non-Cash......................... -- -- Proceeds from sale of investments......................... -- -- Collections on notes receivable........................... -- -- Net (increase)/decrease in restricted escrows............. (22,400) -- Net insurance proceeds received from casualty events...... -- -- Dividends received........................................ -- -- --------- -------- Net cash provided by (used in) investing activities...................................... (64,140) (95,542) --------- -------- Financing Activities Payments on mortgage...................................... (15,002) (13,822) Repayment of mortgage..................................... -- -- Prepayment penalties...................................... -- -- Proceeds from refinancing of mortgage..................... -- -- Payment of Loan Costs..................................... -- -- Partners' Distributions................................... (365,267) (471) --------- -------- Net cash provided by (used in) financing activities...................................... (380,269) (14,293) --------- -------- Net increase (decrease) in cash and cash equivalents...... (241,398) (87,941) Cash and cash equivalents at beginning of year............ 599,000 176,000 --------- -------- Cash and cash equivalents at end of period........ $ 357,602 $ 88,059 ========= ========
F-4 3063 RIVERCREEK APARTMENTS NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Rivercreek Apartments as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with the accounting basis for Federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis for Federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 3064 REPORT OF INDEPENDENT AUDITORS The Partners Rivercreek Apartments Limited Partnership We have audited the accompanying balance sheet of Rivercreek Apartments Limited Partnership as of December 31, 1997, and the related statements of operations, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rivercreek Apartments Limited Partnership at December 31, 1997, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP August 31, 1998 Greenville, South Carolina F-6 3065 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents:.................................. $ 599 Receivables and deposits.................................... 60 Accounts receivable -- General Partners..................... 13 Restricted escrow (Note C).................................. 25 Prepaid assets.............................................. 5 Deferred charges (Note C)................................... 101 Investment property (Notes B and C): Land...................................................... $ 322 Building and improvements................................. 4,352 ------- 4,674 Less accumulated depreciation............................. (2,943) 1,731 ------- ------- $ 2,534 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 18 Other liabilities......................................... 17 Tenant security deposits payable.......................... 16 Mortgage note payable (Note C)............................ 3,800 ------- 3,851 Partners' capital/(deficit): General partners.......................................... $ 8 Limited partners (31 units issued and outstanding)........ (1,325) (1,317) ------- ------- $ 2,534 =======
See accompanying notes. F-7 3066 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 1,083 Other income.............................................. 62 ---------- 1,145 Expenses: Operating................................................. $664 General and administrative................................ 21 Depreciation.............................................. 146 Interest (Note B)......................................... 327 Property taxes............................................ 47 1,205 ---- ---------- Loss before extraordinary item.............................. (60) Extraordinary loss on extinguishment of debt (Note C)....... (104) ---------- Net loss.................................................... $ (164) ========== Net loss allocated to general partners (1%)................. $ (2) Net loss allocated to limited partners (99%)................ (162) ---------- $ (164) ========== Per limited partnership unit: Loss before extraordinary item............................ $(1,920.29) Extraordinary loss on extinguishment of debt.............. (3,308.68) ---------- Net loss.................................................... $(5,228.97) ==========
See accompanying notes. F-8 3067 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
LIMITED GENERAL PARTNERS PARTNERS TOTAL -------- -------- ------- Partners' (deficit)/capital at December 31, 1996............ $(1,163) $10 $(1,153) Net loss.................................................. (162) (2) (164) ------- --- ------- Partners' (deficit)/capital at December 31, 1997............ $(1,325) $ 8 $(1,317) ======= === =======
See accompanying notes. F-9 3068 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net loss.................................................. $ (164) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 146 Amortization of loan costs............................. 6 Extraordinary loss on extinguishment of debt........... 104 Changes in assets and liabilities: Receivables and deposits............................. (24) Other assets......................................... (5) Accounts payable..................................... (27) Security deposits payable............................ (3) Other liabilities.................................... (22) ------- Net cash provided by operating activities................. 11 Cash flows from investing activities Deposits to restricted escrows............................ (11) Property improvements and replacements.................... (150) ------- Net cash used in investing activities..................... (161) Cash flows from financing activities Loan costs................................................ (101) Proceeds from refinancing................................. 3,800 Payoff of mortgage note payable........................... (3,004) Principal payments on mortgage note payable............... (28) Prepayment penalty........................................ (75) ------- Net cash provided by financing activities................. 592 ------- Increase in cash and cash equivalents..................... 442 Cash and cash equivalents at December 31, 1996............ 157 ------- Cash and cash equivalents at December 31, 1997............ $ 599 ======= Supplemental disclosure of cash flow information: Cash paid for interest.................................... $ 320 =======
See accompanying notes. F-10 3069 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Rivercreek Apartments Limited Partnership (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated December 27, 1979, and extending to December 31, 2019, unless terminated sooner. Thirty-one units of limited partnership interests, an individual general partnership interest, and a corporate general partnership interest were issued. The Partnership owns and operates a 224-unit apartment complex, Rivercreek Apartments, in Augusta, Georgia. Investment Property The investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. F-11 3070 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Loan Costs Loan costs are being amortized using the straight-line method over the life of the loan. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Partnership Allocations Net earnings or loss, distributions to partners, and taxable income or loss are allocated to the partners in accordance with the partnership agreement. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. The balance in the restricted escrow account at December 31, 1997 was approximately $25,000. NOTE B -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ----------- ------------- Rivercreek Apartments............................ $3,800 $322 $3,196 $1,156 ====== ==== ====== ======
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE - YEARS ----------- ---- ----------- ------ ------------ -------- ------------ Rivercreek Apartments........... $322 $4,352 $4,674 $2,943 11/15/80 5 -30 ==== ====== ====== ======
The depreciable lives included above are for the buildings and components. The depreciable live for related personal property are for 5 to 7 years. F-12 3071 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment property Balance at beginning of year.............................. $4,524 Property improvements..................................... 150 ------ Balance at end of year.................................... $4,674 ====== Accumulated depreciation Balance at beginning of year.............................. $2,797 Additions charged to expense.............................. 146 ------ Balance at end of year.................................... $2,943 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $4,674,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $3,062,000. NOTE C -- MORTGAGE NOTE PAYABLE In December 1997, the Partnership refinanced the mortgage encumbering the investment property. The total indebtedness refinanced was approximately $3,004,000. The new indebtedness of $3,800,000 carries a stated rate of 7.25% and is amortized over thirty years with a balloon payment of $2,469,000 due on January 1, 2008. A Repair Escrow of $25,000 was established with the refinancing proceeds for certain repairs identified at the time of the refinancing. In addition, the new note requires a monthly deposit of approximately $4,000 for a replacement reserve. The Partnership incurred approximately $101,000 in loan costs associated with the refinancing. The Partnership recognized an extraordinary loss of approximately $104,000 resulting from prepayment penalties incurred and the write-off of unamortized loan costs. The mortgage note is payable in monthly installments of approximately $26,000. The mortgage note is nonrecourse and is collateralized by all apartment property and related tenant leases. The mortgage note requires prepayment penalties if repaid prior to maturity. Principal maturities of the mortgage note payable at December 31, 1997 are as follows (in thousands): 1998....................................................... $ 34 1999....................................................... 39 2000....................................................... 42 2001....................................................... 45 2002....................................................... 49 Thereafter................................................. 3,591 ------ $3,800 ======
NOTE D -- RELATED PARTY TRANSACTIONS Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $56 General partner reimbursements.............................. 9
F-13 3072 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Additionally, the Partnership paid approximately $15,000 to affiliates of Insignia for reimbursements of costs related to the refinancing of Rivercreek in December 1997. These costs were capitalized as loan costs and are being amortized over the term of the loan. For the period of January 1, 1997, to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. Insignia entered into an Agreement and Plan of Merger, dated as of May 26, 1998, (as subsequently amended and restated, the "Merger Agreement") with Apartment Investment and Management Company ("AIMCO"), pursuant to which Insignia will merge its national residential property management operations and its controlling interest in Insignia Properties Trust with and into AIMCO, with AIMCO as the survivor. Consummation of the Merger, which is anticipated to occur in the third quarter of 1998, is subject to certain conditions, including the approval of the stockholders of Insignia (but not the approval of the stockholders of AIMCO). If the closing occurs, AIMCO will then control the General Partner of the Partnership. NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except unit data): Net loss as reported........................................ $ (164) Add: Depreciation differences............................... 20 ---------- Federal loss................................................ $ (144) ========== Federal taxable loss per limited partnership unit........... $(4,598.71) ==========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported................................. $(1,317) Accumulated depreciation.................................... (119) Syndication and distribution costs.......................... 181 Other....................................................... 11 ------- Net liabilities -- tax basis................................ $(1,244) =======
NOTE F -- YEAR 2000 (UNAUDITED) The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. F-14 3073 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE G -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-15 3074 REPORT OF INDEPENDENT AUDITORS The Partners Rivercreek Apartments Limited Partnership We have audited the accompanying statement of assets, liabilities and partners' deficit -- Federal income tax basis of Rivercreek Apartments Limited Partnership as of December 31, 1997, and the related statement of revenues, expenses and changes in partners' deficit -- Federal income tax basis for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note A, these financial statements have been prepared on the accounting basis used for Federal income tax purposes which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and partners' deficit of Rivercreek Apartments Limited Partnership at December 31, 1997, and its revenues, expenses and changes in partners' deficit for the year then ended, on the basis of accounting described in Note A. /s/ ERNST & YOUNG LLP February 22, 1998 Greenville, South Carolina F-16 3075 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 599 Receivables and deposits.................................... 60 Accounts receivable -- General Partner...................... 13 Restricted escrow(Note C)................................... 25 Prepaid assets.............................................. 5 Deferred charges(Note B).................................... 282 Investment property(Note C): Land...................................................... $ 322 Buildings and related personal property................... 4,352 ------- 4,674 Less accumulated depreciation............................. (3,062) 1,612 ------- ------- $ 2,596 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 18 Other liabilities......................................... 6 Tenant security deposits payable.......................... 16 Mortgage note payable(Note C)............................. 3,800 ------- 3,840 Partners' deficit........................................... (1,244) ------- $ 2,596 =======
See accompanying notes. F-17 3076 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF REVENUES, EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Revenues: Rental income............................................. $ 1,083 Other income.............................................. 62 ------- 1,145 Expenses: Operating................................................. $664 General and administrative................................ 21 Depreciation.............................................. 126 Interest.................................................. 327 Property taxes............................................ 47 Loss on extinguishment of debt............................ 104 1,289 ---- ------- Excess of expenses over revenues............................ (144) Partners' deficit at December 31, 1996...................... (1,100) ------- Partners' deficit at December 31, 1997...................... $(1,244) =======
See accompanying notes. F-18 3077 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Rivercreek Apartments Limited Partnership (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated December 27, 1979, and extending to December 31, 2019, unless terminated sooner. The Partnership owns and operates a 224-unit apartment complex, Rivercreek Apartments, in Augusta, Georgia. Basis of Accounting The financial statements are prepared on the accrual basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because, on the tax basis, (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property acquired after December 31, 1980 are depreciated using the asset lives specified under the accelerated cost recovery system ("ACRS") or modified ACRS instead of over the estimated lives of the assets and (3) amortization of certain deferred fees is not allowed. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Depreciation Buildings and related personal property acquired prior to January 1, 1981 are depreciated using straight-line and accelerated methods over estimated lives of 3 to 33 years; additions subsequent to December 31, 1980 are depreciated using the lives specified under ACRS. Under ACRS, depreciation is based on accelerated methods (1) for real property, over 15 years for additions prior to March 16, 1984, 18 years for additions after March 15, 1984 and before May 9, 1985, and 19 years for additions after May 8, 1985 and before January 1, 1987, and (2) for personal property, over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified ACRS method is used (1) for real property additions over 27 1/2 years and (2) for personal property additions over 7 years. Leases The Partnership generally leases apartment units for twelve-month terms or less. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. F-19 3078 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Amortization Loan costs are being amortized using the straight-line method over the life of the loan (ten years). Offering Costs Costs incurred in connection with the solicitation of equity capital have been capitalized and represent a deferred charge deductible upon termination of the Partnership. Income Taxes No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising The Partnership expenses the costs of advertising as incurred. NOTE B -- DEFERRED CHARGES Various costs incurred in connection with the purchase and refinancing of the project are as follows (in thousands): Non-amortizable offering costs........................ $181 Loan costs............................................ 102 ---- 283 Less accumulated amortization......................... 1 ---- $282 ====
NOTE C -- MORTGAGE NOTE PAYABLE In December 1997, the Partnership refinanced the mortgage encumbering the investment property. The total indebtedness refinanced was approximately $3,004,000. The new indebtedness of $3,800,000 carries a stated rate of 7.25% and is amortized over thirty years with a balloon payment due on January 1, 2008. A Repair Escrow of $25,000 was established with the refinancing proceeds for certain repairs identified at the time of the refinancing. In addition, the new note requires a monthly deposit of approximately $4,000 for a replacement reserve. The Partnership incurred approximately $102,000 in loan costs associated with the refinancing. The Partnership recognized a loss of approximately $104,000 resulting from prepayment penalties incurred and the write-off of unamortized loan costs. The mortgage note is payable in monthly installments of approximately $26,000. The mortgage note is nonrecourse and is collateralized by all apartment property and related tenant leases. The mortgage note requires prepayment penalties if repaid prior to maturity. F-20 3079 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Principal maturities of the mortgage note payable at December 31, 1997 are as follows (in thousands): 1998................................................ $ 34 1999................................................ 39 2000................................................ 42 2001................................................ 45 2002................................................ 49 Thereafter.......................................... 3,591 ------ $3,800 ======
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees............................... $56 General partner reimbursements......................... 9
Additionally, the Partnership paid approximately $15,000 to affiliates of Insignia for reimbursements of costs related to the refinancing of Rivercreek in December 1997. These costs were capitalized as loan costs and are being amortized over the term of the loan. For the period of January 1, 1997, to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. NOTE E EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-21 3080 REPORT OF INDEPENDENT AUDITORS The Partners Rivercreek Apartments Limited Partnership We have audited the accompanying statement of assets, liabilities and partners' deficit -- Federal income tax basis of Rivercreek Apartments Limited Partnership as of December 31, 1996, and the related statement of revenues, expenses and changes in partners' deficit -- Federal income tax basis for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note A, these financial statements have been prepared on the accounting basis used for Federal income tax purposes which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and partners' deficit of Rivercreek Apartments Limited Partnership as of December 31, 1996, and its revenues, expenses and changes in partners' deficit for the year then ended, on the basis of accounting described in Note A. /s/ ERNST & YOUNG LLP February 25, 1997 Greenville, South Carolina F-22 3081 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1996 (IN THOUSANDS) ASSETS Cash and cash equivalents: Unrestricted.............................................. $ 157 Restricted -- tenant security deposits.................... 19 Accounts receivable, net.................................... 17 Accounts receivable -- General Partner...................... 13 Escrow for taxes............................................ 14 Deferred charges(Note B).................................... 215 Investment properties(Note C) Land...................................................... $ 322 Buildings and related personal property................... 4,202 ------- 4,524 Less accumulated depreciation............................. (2,936) 1,588 ------- ------- $ 2,023 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable and other accrued liabilities............ $ 45 Tenant security deposits.................................. 19 Accrued interest.......................................... 27 Mortgage note payable(Note C)............................. 3,032 ------- 3,123 Partners' deficit........................................... (1,100) ------- $ 2,023 =======
See accompanying notes. F-23 3082 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF REVENUES, EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Revenues: Rental income............................................. $ 1,064 Other income.............................................. 95 ------- 1,159 Expenses: Operating................................................. $441 Maintenance............................................... 229 Depreciation.............................................. 126 Interest.................................................. 324 Property taxes............................................ 45 Bad debt expense.......................................... 32 1,197 ---- ------- Excess of expenses over revenues............................ (38) Distributions............................................... (2) Partners' deficit at December 31, 1995...................... (1,060) ------- Partners' deficit at December 31, 1996...................... $(1,100) =======
See accompanying notes. F-24 3083 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Rivercreek Apartments Limited Partnership (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated December 27, 1979, and extending to December 31, 2019, unless terminated sooner. The Partnership owns and operates a 224-unit apartment complex, Rivercreek Apartments, in Augusta, Georgia. Basis of Accounting The financial statements are prepared on the accrual basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because, on the tax basis, (1) certain rental income received in advance as recorded as income in the year received rather than in the year earned, (2) buildings and related personal property acquired after December 31, 1980 are depreciated using the asset lives specified under the accelerated cost recovery system ("ACRS") or modified ACRS instead of over the estimated lives of the assets and (3) amortization of certain deferred fees is not allowed. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Depreciation Buildings and related personal property acquired prior to January 1, 1981 are depreciated using straight-line and accelerated methods over estimated lives of 3 to 33 years; additions subsequent to December 31, 1980 are depreciated using the lives specified under ACRS. Under ACRS, depreciation is based on accelerated methods (1) for real property, over 15 years for additions prior to March 16, 1984, 18 years for additions after March 15, 1984 and before May 9, 1985, and 19 years for additions after May 8, 1985 and before January 1, 1987, and (2) for personal property, over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified ACRS method is used (1) for real property additions over 27 1/2 years and (2) for personal property additions over 7 years. Leases The Partnership generally leases apartment units for twelve-month terms or less. Cash and Cash Equivalents -- Unrestricted Cash The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. F-25 3084 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Amortization Loan modification costs are being amortized using the straight-line method over 23 years. Offering Costs Costs incurred in connection with the solicitation of equity capital have been capitalized and represent a deferred charge deductible upon termination of the Partnership. Income Taxes No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising The Partnership expenses the costs of advertising as incurred. NOTE B -- DEFERRED CHARGES Various costs incurred in connection with the purchase and refinancing of the project are as follows (in thousands): Non-amortizable offering costs........................ $181 Loan modification costs............................... 40 ---- 221 Less accumulated amortization......................... 6 ---- $215 ====
NOTE C -- MORTGAGE NOTE PAYABLE The mortgage note is payable in monthly installments of approximately $29,000 including interest at 10.625% per annum, and matures in 2012. The note is collateralized by all apartment property and related tenant leases. The mortgage note may be prepaid with a prepayment premium of 2% of the outstanding principal balance. The prepayment premium will decrease at the rate of 1/2% each year until it reaches 1%. Principal maturities of the mortgage note payable at December 31, 1996 are as follows (in thousands): 1997................................................ $ 29 1998................................................ 32 1999................................................ 35 2000................................................ 39 2001................................................ 44 Thereafter.......................................... 2,853 ------ $3,032 ======
F-26 3085 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1996 (in thousands): Property management fees............................... $57 General partner reimbursements......................... 17
The Partnership insures its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the Managing General Partner who received payment on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations is not significant. NOTE E -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-27 3086 REPORT OF INDEPENDENT AUDITORS The Partners Rivercreek Apartments Limited Partnership We have audited the accompanying statement of assets, liabilities and partners' deficit -- Federal income tax basis of Rivercreek Apartments Limited Partnership as of December 31, 1995, and the related statement of revenues, expenses and changes in partners' deficit -- Federal income tax basis for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note 1, these financial statements have been prepared on the accounting basis used for Federal income tax purposes which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and partners' deficit of Rivercreek Apartments Limited Partnership as of December 31, 1995, and its revenues, expenses and changes in partners' deficit for the year then ended, on the basis of accounting described in Note 1. /s/ ERNST & YOUNG LLP March 5, 1996 Greenville, South Carolina F-28 3087 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1995 ASSETS Cash, including tenant security deposits of $22,595......... $ 309,692 Tenant accounts receivable.................................. 4,689 Accounts receivable -- General Partners..................... 12,576 Mortgage escrow deposits.................................... 15,719 Deferred charges, net of accumulated amortization (Note 2)........................................................ 192,969 Apartment property, at cost (Note 3): Land...................................................... $ 321,687 Buildings and related personal property................... 4,014,731 ---------- 4,336,418 Less accumulated depreciation............................. 2,809,551 1,526,867 ---------- ----------- $ 2,062,512 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable and other accrued liabilities............ $ 17,619 Accrued interest.......................................... 27,075 Tenant security deposits.................................. 19,829 Mortgage note payable (Note 3)............................ 3,057,889 ----------- 3,122,412 Partners' deficit........................................... (1,059,900) ----------- $ 2,062,512 ===========
See accompanying notes. F-29 3088 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP STATEMENT OF REVENUES, EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1995 Revenues: Apartment rentals......................................... $ 1,079,530 Other rental income....................................... 64,569 Interest income........................................... 6,995 ----------- 1,151,094 Expenses: Operating................................................. $409,917 Property management fees (Note 4)......................... 57,055 Depreciation.............................................. 124,858 Amortization.............................................. 761 Interest.................................................. 326,047 Property taxes............................................ 45,298 Maintenance............................................... 125,574 1,089,510 -------- ----------- Excess of revenues over expenses............................ 61,584 Distribution................................................ (931) Partners' deficit at December 31, 1994...................... (1,120,553) ----------- Partners' deficit at December 31, 1995...................... $(1,059,900) ===========
See accompanying notes. F-30 3089 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1995 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Rivercreek Apartments Limited Partnership (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated December 27, 1979, and extending to December 31, 2019, unless terminated sooner. The Partnership owns and operates a 224-unit apartment complex, Rivercreek Apartments, in Augusta, Georgia. Basis of Accounting The financial statements are prepared on the accrual basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because, on the tax basis, (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property acquired after December 31, 1980 are depreciated using the asset lives specified under the accelerated cost recovery system ("ACRS") or modified ACRS instead of over the estimated lives of the assets and (3) amortization of certain deferred fees is not allowed. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Depreciation Buildings and related personal property acquired prior to January 1, 1981 are depreciated using straight-line and accelerated methods over estimated lives of 3 to 33 years; additions subsequent to December 31, 1980 are depreciated using the lives specified under ACRS. Under ACRS, depreciation is based on accelerated methods (1) for real property over 15 years for additions prior to March 16, 1984, 18 years for additions after March 15, 1984 and before May 9, 1985, and 19 years for additions after May 8, 1985 and before January 1, 1987, and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified ACRS method is used (1) for real property additions over 27 1/2 years and (2) for personal property additions over 7 years. Leases The Partnership generally leases apartment units for twelve-month terms or less. Amortization Loan modification costs are being amortized using the straight-line method over 23 years. Offering Costs Costs incurred in connection with the solicitation of equity capital have been capitalized and represent a deferred charge deductible upon termination of the Partnership. Income Taxes No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. F-31 3090 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising The Partnership expenses the costs of advertising as incurred. 2. DEFERRED CHARGES Various costs incurred in connection with the purchase and refinancing of the project are as follows: Non-amortizable offering costs.................... $180,735 Loan modification costs........................... 17,495 -------- 198,230 Less accumulated amortization..................... 5,261 -------- $192,969 ========
3. MORTGAGE NOTE PAYABLE The mortgage note is payable in monthly installments of $29,112, including interest at 10.625% per annum, and matures in 2012. The note is collateralized by all apartment property and related tenant leases. The mortgage note may be prepaid with a prepayment premium of 3% of the outstanding principal balance. The prepayment premium will decrease at the rate of 1/2% each year until it reaches 1%. Principal maturities of the mortgage note payable at December 31, 1995 are as follows: 1996............................................. $ 25,897 1997............................................. 28,786 1998............................................. 31,998 1999............................................. 35,569 2000............................................. 39,537 Thereafter....................................... 2,896,102 ---------- $3,057,889 ==========
4. TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made or are payable to Insignia and its affiliates in 1995: Property management fees........................... $57,055 General partner reimbursements..................... 6,732
F-32 3091 RIVERCREEK APARTMENTS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) 5. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-33 3092 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 3093 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 3094 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 September , 1998 A-3 3095 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998 AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF RIVERCREST APARTMENTS, 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 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 3096 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-18 Comparison of Your Partnership and the AMICO 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-20 Summary Financial Information of AIMCO Properties, L.P............................ S-21 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-23 Summary Financial Information of Rivercrest Apartments, Ltd............................ S-26 Comparative Per Unit Data.................... S-26 THE AIMCO OPERATING PARTNERSHIP................ S-27 RISK FACTORS................................... S-27 Risks to Unitholders Who Tender Their Units in the Offer............................... S-27 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-29 BACKGROUND AND REASONS FOR THE OFFER........... S-30 Background of the Offer...................... S-30 Alternatives Considered...................... S-31 Expected Benefits of the Offer............... S-32 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-36 Extension of Tender Period; Termination; Amendment.................................. S-37 Proration.................................... S-37 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-41 Fees and Expenses............................ S-42 Accounting Treatment......................... S-42 DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-43 Distributions................................ S-43
PAGE ---- Allocation................................... S-44 Liquidation Preference....................... S-44 Redemption................................... S-45 Voting Rights................................ S-45 Restrictions on Transfer..................... S-45 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-48 CERTAIN FEDERAL INCOME TAX MATTERS............. S-51 Tax Consequences of Exchanging Units Solely for OP Units............................... S-51 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-51 Tax Consequences of Exchanging Units Solely for Cash................................... S-52 Adjusted Tax Basis........................... S-52 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-53 Passive Activity Losses...................... S-53 Foreign Offerees............................. S-54 Certain Tax Consequences to Non-Tendering and Partially-Tendering Unitholders............ S-54 VALUATION OF UNITS............................. S-55 FAIRNESS OF THE OFFER.......................... S-56 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-56 Fairness to Unitholders who Tender their Units...................................... S-57 Fairness to Unitholders who do not Tender their Units................................ S-58 Comparison of Consideration to Alternative Consideration.............................. S-58 Allocation of Consideration.................. S-59 STANGER ANALYSIS............................... S-59 Experience of Stanger........................ S-60 Summary of Materials Considered.............. S-60 Summary of Reviews........................... S-61 Conclusions.................................. S-61 Assumptions, Limitations and Qualifications............................. S-61 Compensation and Material Relationships...... S-62 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-63 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-68 CONFLICTS OF INTEREST.......................... S-72 Conflicts of Interest with Respect to the Offer...................................... S-72 Conflicts of Interest that Currently Exist for Your Partnership....................... S-72 Competition Among Properties................. S-72 Features Discouraging Potential Takeovers.... S-72 Future Exchange Offers....................... S-72 YOUR PARTNERSHIP............................... S-73 General...................................... S-73 Your Partnership and its Property............ S-73 Property Management.......................... S-73 Investment Objectives and Policies; Sale or Financing of Investments................... S-73 Capital Replacement.......................... S-74
i 3097
PAGE ---- Borrowing Policies........................... S-74 Competition.................................. S-74 Legal Proceedings............................ S-74 Selected Financial Information............... S-74 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-76 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78 Distributions and Transfers of Units......... 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 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 3098 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 Rivercrest Apartments, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 3099 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 3100 - 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 $3,300 per unit for the six months ended June 30, 1998, (equivalent to $6,600 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 distributions of $ 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 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 3101 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer 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. In addition, 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 of $ in cash per unit is fair. However, your units are not listed on any national securities exchange nor quoted on the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-4 3102 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 100% of 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? 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: 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 3103 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 3104 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. 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. 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 5 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. 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 S-7 3105 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. 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 Code. The particular tax consequences to you of the exchange 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 3106 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the offer. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the 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. S-9 3107 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. 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. 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. MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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 S-10 3108 AIMCO. At the same time, Moody's confirmed its existing rating on AIMCO's preferred stock and senior debt. 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. 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, 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 S-11 3109 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. 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 0% limited partnership interest in 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 August 28, 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 3110 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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- S-13 3111 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. 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. S-14 3112 Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to the expiration date of our offer. 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, S-15 3113 including liabilities under the Federal securities laws. We also pay all costs and expenses of printing and mailing this Prospectus Supplement 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 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 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. In reaching the capitalization rate, we considered your 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 the property. The proceeds that you would receive if you sold your S-16 3114 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: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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. S-17 3115 Comparison of Offer Consideration 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-1 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 is not subject to such limitations. 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. S-18 3116 Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives 1/4 of 1% of the gross operating revenue of your partnership's property as a partnership administration fee from your partnership and may receive reimbursements for expenses generated in that capacity. The property manager received management fees of $128,000 in 1996, $136,000 in 1997 and $68,822 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 Your Partnership and its Property. Rivercrest Apartments, Ltd. is a South Carolina limited partnership which was formed on November 30, 1983 for the purpose of owning and operating a single apartment property located in Roswell, Georgia, known as "Rivercrest Apartments". In 1983, it completed a private placement of units that raised net proceeds of approximately $8,887,500. Rivercrest Apartments consists of 312 apartment units. Your partnership has no employees. Property Management. Since December 1990, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2013, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $6,841,780, payable to GMAC, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $243,117, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. S-19 3117 Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-20 3118 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 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) 8 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-21 3119
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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-22 3120 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-23 3121
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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-24 3122 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-25 3123 SUMMARY FINANCIAL INFORMATION OF RIVERCREST APARTMENTS, LTD. The summary financial information of Rivercrest Apartments, Ltd. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Rivercrest Apartments, 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 of Your Partnership" included herein. See "Index to Financial Statements." RIVERCREST APARTMENTS, LTD.
THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- --------------------------------------- 1998 1997 1997 1997 1996 ----------- ----------- ----------- ----------- ----------- (1) (1) (1) (2) (1) Operating Data: Total Revenues......... $ 1,345,116 $ 1,356,622 $ 2,754,000 $ 2,740,000 $ 2,607,000 Net Income/(Loss)............ 14,241 0 (93,000) 84,000 (15,000) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation... $ 2,510,191 $ 2,975,752 $ 2,771,000 $ 8,638,000 $ 3,205,000 Total Assets........... 4,801,970 5,173,672 5,028,000 10,054,000 5,074,000 Mortgage Notes Payable, including Accrued Interest................... 6,812,275 6,998,648 6,922,000 6,922,000 7,073,000 Partners' Capital/(Deficit).......... $(2,205,055) $(2,022,316) $(2,219,000) $ 2,782,000 $(2,126,000) FOR THE YEAR ENDED DECEMBER 31, --------------------------------------- 1995 1994 1993 ----------- ----------- ----------- (1) (1) (1) Operating Data: Total Revenues......... $ 2,452,185 $ 2,304,978 $ 2,108,971 Net Income/(Loss)............ (186,592) (293,659) (648,746) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation... $ 3,694,353 $ 4,093,366 $ 4,656,722 Total Assets........... 5,233,569 5,540,479 5,920,845 Mortgage Notes Payable, including Accrued Interest................... 7,209,220 7,331,175 7,465,741 Partners' Capital/(Deficit).......... $(2,111,399) $(1,924,807) $(1,631,148)
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 YOUR 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 $3300 $0
- --------------- (1) Information prepared on a Federal Income Tax Basis. (2) Information prepared in accordance with Generally Accepted Accounting Principles. S-26 3124 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. 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 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 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, 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 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. S-27 3125 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 Code. 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 therefore 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 apartment property. In contrast, the AIMCO Operating Partnership is in the business of acquiring, S-28 3126 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, and distributions with respect to your units for the six months ended June 30, 1998 per unit ($6,600 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 an exchange for each of your partnership's units. Therefore, with respect to your units, 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 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 S-29 3127 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 prohibits any transfer of units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the offer. MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently own a 0% limited partnership interest in your partnership. S-30 3128 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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-31 3129 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 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 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 3130 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 and the expiration of the offer. See "Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. S-33 3131 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 3132 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. 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 S-35 3133 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." 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. 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. S-36 3134 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, (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 considerations being offered, 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 9:00 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 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, Denver, Colorado 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. S-37 3135 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-38 3136 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, which change, 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 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 S-39 3137 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 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 S-40 3138 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-41 3139 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. 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. DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. S-42 3140 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 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 S-43 3141 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 payment. 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 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 S-44 3142 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-45 3143 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-46 3144 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-47 3145 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-48 3146 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-49 3147 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-50 3148 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-51 3149 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-52 3150 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-53 3151 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 UNITHOLDERS 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 unitholders who do not tender all of their units (a "Remaining Unitholders") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Unitholder will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Unitholders in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Unitholder'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 Unitholders 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 Unitholders 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 unitholder 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 unitholders. In the case of a Remaining Unitholder 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 unitholder's taxable income for the year of Termination. S-54 3152 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value the value, as of June 30, 1998, 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-55 3153 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-56 3154 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 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, a third party expert, 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 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. 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 per unit ($6,600 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 an exchange for each of your partnership's units. Therefore, with respect to your units, 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-57 3155 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-58 3156 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 Consideration.................................... $ 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. 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-59 3157 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-60 3158 performed a site inspection 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 September 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 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 property was 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 S-61 3159 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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 S-62 3160 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. 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 South Carolina law for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Rivercrest Apartments. 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, 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, operate, The purpose of the AIMCO Operating Partnership is to lease, and manage your partnership's property for conduct any business that may be lawfully conducted by investment, capital appreciation and the production of a limited partnership organized pursuant to the income. Subject to restrictions contained in your Delaware Revised Uniform Limited Partnership Act (as partnership's agreement of limited partnership, your amended from time to time, or any successor to such partnership may do all things necessary for or statute) (the "Delaware Limited Partnership Act"), incidental to the protection and benefit of your provided that such business is to be conducted in a partnership, including, without limitation, borrowing manner that permits AIMCO to be qualified as a REIT, funds 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,
S-63 3161 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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.
Additional Equity The general partners of your partnership are 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 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 The general partner of your partnership may not enter The AIMCO Operating Partnership may lend or contribute into agreements with itself or any of its affiliates funds or other assets to its subsidiaries or other for services, except for agreements for the management persons in which it has an equity investment, and such and operations of your partnership's property and other persons may borrow funds from the AIMCO Operating such agreements set forth in your partnership's Partnership, on terms and conditions established in the agreement of limited partnership. In addition, your sole and absolute discretion of the general partner. To partnership is not allowed to make loans to the the extent consistent with the business purpose of the partner. However, the general partner may, and in AIMCO Operating Partnership and the permitted certain circumstances are required to, lend money to activities of the general partner, the AIMCO Operating your partnership as the general partner deem necessary Partnership may transfer assets to joint ventures, for the payment of any partnership obligations and limited liability companies, partnerships, expenses, which loans, will be repaid with interest at corporations, business trusts or other business the rate of 1% per annum over the then prevailing prime entities in which it is or thereby becomes a rate of The Citizens and Southern National Bank of participant upon such terms and subject to such South Carolina for short-term, unsecured loans (but in conditions consistent with the AIMCO Operating Part- no event to exceed the maximum legal rate) from the nership Agreement and applicable law as the general first available cash and prior to any distributions to partner, in its sole and absolute discretion, believes the limited partners; provided, however, that the to be advisable. Except as expressly permitted by the managing general partner must first make reasonable AIMCO Operating Partnership Agreement, neither the efforts to secure loans from an unaffiliated third general partner nor any of its affiliates may sell, party. 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 partners of your partnership are The AIMCO Operating Partnership Agreement contains no authorized, on behalf of your partnership, to borrow restrictions on borrowings, and the general partner has funds, execute and issue mortgage notes and other full power and authority to borrow money on behalf of evidences of indebtedness and secure such indebt- the AIMCO Operating Partnership. The AIMCO Operating edness by mortgage, deed of trust, pledge or other Partnership has credit agreements that restrict, among lien; provided, however, that a refinancing of your other things, its ability to incur indebtedness. See partnership's property will be in the sole discretion "Risk Factors -- Risks of Significant Indebtedness" in of the managing general partner. the accompanying Prospectus.
S-64 3162 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 the limited partners or their duly authorized with a statement of the purpose of such demand and at representative to review the books and records of your such OP Unitholder's own expense, to obtain a current partnership upon reasonable notice during business list of the name and last known business, residence or hours at the registered office of your partnership at mailing address of the general partner and each other such limited partners' expense. OP Unitholder.
Management Control The general partner of your partnership is responsible All management powers over the business and affairs of for and direct the management of your partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business and assets and has all rights and powers Inc., which is the general partner. No OP Unitholder generally conferred by law or which are necessary, has any right to participate in or exercise control or advisable or consistent in connection therewith, management power over the business and affairs of the subject to the limitations contained in your AIMCO Operating Partnership. The OP Unitholders have partnership's agreement of limited partnership. No the right to vote on certain matters described under limited partner has the right to take part in or "Comparison of Ownership of Your Units and AIMCO OP interfere in any manner with the conduct or control of Units -- Voting Rights" below. The general partner may the business of your partnership or the right or not be removed by the OP Unitholders with or without authority to act for or bind your partnership. 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 are not liable to your partnership or the limited partner is not liable to the AIMCO Operating partners and are indemnified for any loss or damage Partnership for losses sustained, liabilities incurred resulting from any act or omission performed or omitted or benefits not derived as a result of errors in in good faith, which does not constitute fraud, gross judgment or mistakes of fact or law of any act or negligence or willful misconduct, pursuant to the omission if the general partner acted in good faith. authority granted to them to promote the interests of The AIMCO Operating Partnership Agreement provides for your partnership. Moreover, the general partner is not indemnification of AIMCO, or any director or officer of liable to your partnership of the limited partner AIMCO (in its capacity as the previous general partner because any taxing authorities disallow or adjust any of the AIMCO Operating Partnership), the general deduction or credits in your partnership income tax partner, any officer or director of general partner or returns. the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware 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
S-65 3163 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 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 units. A general partner partner may not be removed as general partner of the may resign at any time; provided, however that such AIMCO Operating Partnership by the OP Unitholders with resignation does not cause the default under or result or without cause. Under the AIMCO Operating Partnership in the acceleration of the payment of any loan secured Agreement, the general partner may, in its sole by your partnership's property. The affirmative vote or discretion, prevent a transferee of an OP Unit from written consent of the limited partners holding a becoming a substituted limited partner pursuant to the majority of the outstanding units are required for the AIMCO Operating Partnership Agreement. The general election and admission of a substitute general partner. partner may exercise this right of approval to deter, A limited partners may not transfer its units without delay or hamper attempts by persons to acquire a the written consent of the managing general partner. 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 to effect a in the AIMCO Operating Partnership Agreement, whereby ministerial change which does not materially affect the the general partner may, without the consent of the OP rights of the limited partners and as required by law. Unitholders, amend the AIMCO Operating Partnership All other amendments must be approved by the limited Agreement, amendments to the AIMCO Operating partners owning more than 50% of the units, the general Partnership Agreement require the consent of the partner and, amendments that will adversely affect the holders of a majority of the outstanding Common OP rights or interests of any general partner, by such Units, excluding AIMCO and certain other limited general partner. Limited partners owning at least 20% exclusions (a "Majority in Interest"). Amendments to of the units have the power to propose amendments to the AIMCO Operating Partnership Agreement may be the agreement. proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives 1/4 of 1% of the gross operating revenue of capacity as general partner of the AIMCO Operating your partnership's property as a partnership Partnership. In addition, the AIMCO Operating Part- administration fee. Moreover, the general partner or nership is responsible for all expenses incurred certain affiliates may be entitled to compensation for relating to the AIMCO Operating Partnership's ownership additional services rendered. 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-66 3164 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors No limited partner, unless it is deemed to be taking Except for fraud, willful misconduct or gross part in the control of the business, is bound by, or is negligence, no OP Unitholder has personal liability for personally liable for the expenses, liabilities or the AIMCO Operating Partnership's debts and obligation of your partnership and his liability is obligations, and liability of the OP Unitholders for limited solely to the amount of his capital the AIMCO Operating Partnership's debts and obligations contribution to your partnership, together with the is generally limited to the amount of their invest- undistributed share of the profits of your partnership ment in the AIMCO Operating Partnership. However, the form time to time credited to its capital account and limitations on the liability of limited partners for any money or other property wrongfully paid or conveyed the obligations of a limited partnership have not been to him on account of his contribution, including but clearly established in some states. If it were not limited to money or property to which creditors determined that the AIMCO Operating Partnership had were legally entitled, paid or conveyed to a limited been conducting business in any state without compli- partner, and under certain circumstances, interest on ance with the applicable limited partnership statute, returned capital. 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 possess an Unless otherwise provided for in the relevant overriding fiduciary obligation to your partnership. partnership agreement, Delaware law generally requires However, the general partner is not required to devote a general partner of a Delaware limited partnership to all of its time or business efforts to the affairs of adhere to fiduciary duty standards under which it owes your partnership, but it must devote so much of its its limited partners the highest duties of good faith, time and attention to your partnership as is necessary fairness and loyalty and which generally prohibit such and advisable to successfully manage the affairs of general partner from taking any action or engaging in your partnership. In addition, any partner may engage any transaction as to which it has a conflict of in or possess an interest in other business ventures of interest. The AIMCO Operating Partnership Agreement every nature and description, whether such ventures are expressly authorizes the general partner to enter into, competitive with your partnership or otherwise, on behalf of the AIMCO Operating Partnership, a right including but not limited to, the acquisition, of first opportunity arrangement and other conflict ownership, financing, leasing, operation, management, avoidance agreements with various affiliates of the syndication, brokerage, sale, construction and AIMCO Operating Partnership and the general partner, on development of real property, which may be located in such terms as the general partner, in its sole and the market area or vicinity of your partnership's absolute discretion, believes are advisable. The AIMCO property, and neither your partnership nor the partner Operating Partnership Agreement expressly limits the will have any rights in or to such independent ventures liability of the general partner by providing that the or to income or profits derived therefrom. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-67 3165 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, the limited applicable law or in the AIMCO ship Agreement, the OP Unitholders partners have voting rights only Operating Partnership Agreement, have voting rights only with with respect to the following the holders of the Preferred OP respect to certain limited matters issues: sale or other disposition Units will have the same voting such as certain amendments and of your partnership's property, rights as holders of the Common OP termination of the AIMCO Operating material amendments to your Units. See "Description of OP Partnership Agreement and certain partnership's agreement of limited Units" in the accompanying transactions such as the partnership, termination of your Prospectus. So long as any institution of bankruptcy partnership, removal of a general Preferred OP Units are outstand- proceedings, an assignment for the partner, election and admission of ing, in addition to any other vote benefit of creditors and certain a substitute general partner and or consent of partners required by transfers by the general partner of election of a trustee to liquidate law or by the AIMCO Operating its interest in the AIMCO Operating and distribute your Partnership Agree- Part-
S-68 3166 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS partnership's assets upon ment, the affirmative vote or nership or the admission of a retirement of the last remaining consent of holders of at least 50% successor general partner. general partner. Each matter of the outstanding Preferred OP requires the majority vote of the Units will be necessary for Under the AIMCO Operating Partner- holders of units for approval. The effecting any amendment of any of ship Agreement, the general partner consent of the general partner is the provisions of the Partnership has the power to effect the required to sell your partnership's Unit Designation of the Preferred acquisition, sale, transfer, property, to amend your OP Units that materially and exchange or other disposition of partnership's agreement of limited adversely affects the rights or any assets of the AIMCO Operating partnership and to terminate your preferences of the holders of the Partnership (including, but not partnership. Preferred OP Units. The creation or limited to, the exercise or grant issuance of any class or series of of any conversion, option, A general partner may cause the partnership units, including, privilege or subscription right or dissolution of your partnership by without limitation, any partner- any other right available in retiring unless, the remaining ship units that may have rights connection with any assets at any general partner, or if none, all of senior or superior to the Preferred time held by the AIMCO Operating the limited partners, agree to con- OP Units, shall not be deemed to Partnership) or the merger, tinue your partnership and elect a materially adversely affect the consolidation, reorganization or successor general partner by the rights or preferences of the other combination of the AIMCO affirmative vote of the limited holders of Preferred OP Units. With Operating Partnership with or into partners holding a majority of the respect to the exercise of the another entity, all without the outstanding units. 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 are to be distributed no provided, however, that at any time portion as the general partner may less often than quarterly. 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 refi- adjust the annual distribution rate the AIMCO Operating Partnership nancing 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. Your partnership has made interest rate then applicable to partner and the holders of Common distributions in the past and is U.S. Treasury notes with a maturity OP Units on the record date projected to made distributions in of five years, and (ii) the annual established by the general partner 1998. 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-69 3167 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 limited partnership interest to any Preferred OP Units and the OP Units. The AIMCO Operating Part- person provided that: (1) such Preferred OP Units are not listed nership Agreement restricts the transfer is not in contravention of on any securities exchange. The transferability of the OP Units. any applicable law or your Preferred OP Units are subject to Until the expiration of one year partnership's agreement of limited restrictions on transfer as set from the date on which an OP partnership, (ii) a duly executed forth in the AIMCO Operating Unitholder acquired OP Units, and acknowledged assignment has Partnership Agreement. subject to certain exceptions, such been approved by the general OP Unitholder may not transfer all partners and (iii) the transferee Pursuant to the AIMCO Operating or any portion of its OP Units to represents in writing that it Partnership Agreement, until the any transferee without the consent satisfies the suitability require- expiration of one year from the of the general partner, which ments for limited partners. In date on which a holder of Preferred consent may be withheld in its sole order for a transferee to be OP Units acquired Preferred OP and absolute discretion. After the substituted as a limited partner, Units, subject to certain expiration of one year, such OP in addition to the above require- exceptions, such holder of Unitholder has the right to ments: (1) the assignee must Preferred OP Units may not transfer transfer all or any portion of its execute an irrevocable power of all or any portion of its Pre- OP Units to any person, subject to attorney appointing the general ferred OP Units to any transferee the satisfaction of certain partners as the assignee's at- without the consent of the general conditions specified in the AIMCO torney-in-fact, (2) the transfer partner, which consent may be Operating Partnership Agreement, fee is paid, (3) the interest withheld in its sole and absolute including the general partner's transferred is not less than one discretion. After the expiration of right of first refusal. See unit or such lesser amount owned by one year, such holders of Preferred "Description of OP Units -- the assignor and (4) such other OP Units has the right to transfer Transfers and Withdrawals" in the conditions as are set forth in your all or any portion of its Preferred accompanying Prospectus. partnership's agreement of limited OP Units to any person, subject to partnership must be the satisfaction of
S-70 3168 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS fulfilled. certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP There are no redemption rights ment, including the general Units, an OP Unitholder has the associated with your units. partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-71 3169 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives 1/4 of 1% of the gross operating revenue of your partnership's property as a partnership administration fee from your partnership and may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $128,000 in 1996, $136,000 in 1997 and $68,822 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's 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'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 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-72 3170 YOUR PARTNERSHIP GENERAL Rivercrest Apartments, Ltd. is a South Carolina limited partnership which raised net proceeds of approximately $8,887,500 in 1983 through a private offering. The promoter for the private offering of your partnership was U.S. Shelter Corporation. Insignia acquired your partnership in December 1990. AIMCO acquired Insignia in October, 1998. There are currently a total of 142 limited partners of your partnership and a total of 150 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on November 30, 1983 for the purpose of owning and operating a single apartment property located in Roswell, Georgia, known as "Rivercrest Apartments." Your partnership's property consists of 312 apartment units. The total rentable square footage of your partnership's property is 404,246 square feet. Your partnership's property had an average occupancy rate of approximately 96.47% in 1996 and 96.47% in 1997. The average annual rent per apartment unit is approximately $8,356. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1990, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $128,000, $136,000 and $68,822, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2013 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-73 3171 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $6,841,780, payable to GMAC, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $243,117, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-74 3172 Below is selected financial information for Rivercrest Apartments, Ltd. taken from the financial statements described above. See "Index to Financial Statements."
RIVERCREST APARTMENTS, LTD. --------------------------------------------------------- 6/30/98 6/30/97 1997 1996 ------------ ------------ ------------ ------------ (1) (1) (1) (1) BALANCE SHEET DATA Cash and Cash Equivalents................. $ 978,648 $ 775,134 $ 928,000 $ 520,000 Land & Building........................... 16,238,121 15,965,036 16,129,000 15,825,000 Accumulated Depreciation.................. (13,727,930) (12,989,284) (13,358,000) (12,620,000) Other Assets.............................. 1,313,131 1,422,786 1,329,000 1,349,000 ------------ ------------ ------------ ------------ Total Assets...................... $ 4,801,970 $ 5,173,672 $ 5,028,000 $ 5,074,000 ============ ============ ============ ============ Mortgage & Accrued Interest............... $ 6,812,275 $ 6,998,648 $ 6,922,000 $ 7,073,000 Other Liabilities......................... 194,750 197,340 325,000 127,000 ------------ ------------ ------------ ------------ Total Liabilities................. 7,007,025 7,195,988 7,247,000 7,200,000 ------------ ------------ ------------ ------------ Partners Capital (Deficit)................ $ (2,205,055) $ (2,022,316) $ (2,219,000) $ (2,126,000) ============ ============ ============ ============ RIVERCREST APARTMENTS, LTD. ------------------------------------------ 1995 1994 1993 ------------ ------------ ------------ (1) (1) (1) BALANCE SHEET DATA Cash and Cash Equivalents................. $ 202,267 $ 146,615 $ 162,395 Land & Building........................... 15,609,034 15,310,855 15,177,910 Accumulated Depreciation.................. (11,914,681) (11,217,489) (10,521,188) Other Assets.............................. 1,336,949 1,300,498 1,110,728 ------------ ------------ ------------ Total Assets...................... $ 5,233,569 $ 5,540,479 $ 5,929,845 ============ ============ ============ Mortgage & Accrued Interest............... $ 7,209,220 $ 7,331,175 $ 7,465,741 Other Liabilities......................... 135,748 134,111 95,252 ------------ ------------ ------------ Total Liabilities................. 7,344,968 7,465,286 7,560,993 ------------ ------------ ------------ Partners Capital (Deficit)................ $ (2,111,399) $ (1,924,807) $ (1,631,148) ============ ============ ============
RIVERCREST APARTMENTS, LTD. ---------------------------------------------------------------------------------------- 6/30/98 6/30/97 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (1) (1) (1) (1) (1) (1) (1) STATEMENT OF OPERATION DATA Rental Revenue......................... $1,274,603 $1,297,114 $2,633,000 $2,503,000 $2,345,775 $2,206,722 $2,064,355 Other Income........................... 70,513 59,508 121,000 104,000 106,411 98,256 44,616 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue.................. 1,345,116 1,356,622 2,754,000 2,607,000 2,452,186 2,304,978 2,108,971 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses..................... 584,917 494,468 1,231,000 1,065,000 1,080,765 1,027,276 649,473 General & Administrative............... 15,599 14,858 67,000 56,000 58,959 48,397 651,477 Depreciation........................... 369,500 369,500 739,000 705,000 697,192 696,301 682,667 Interest Expense....................... 273,440 283,358 620,000 636,000 649,275 661,844 609,698 Property Taxes......................... 87,419 90,487 190,000 160,000 152,587 164,819 164,402 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses................. 1,330,875 1,252,671 2,847,000 2,622,000 2,638,778 2,598,637 2,757,717 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income............................. $ 14,241 $ 103,951 $ (93,000) $ (15,000) $ (186,592) $ (293,659) $ (648,746) ========== ========== ========== ========== ========== ========== ==========
- --------------- (1) Information prepared on Federal Income Tax Basis. S-75 3173 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $14,241 for the six months ended June 30, 1998, compared to $103,951 for the six months ended June 30, 1997, a decrease in net income of $89,710, or 86.30%. This is due primarily to an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,345,116 for the six months ended June 30, 1998, compared to $1,356,622 for the six months ended June 30, 1997, a decrease of $11,506, or .85%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $584,917 for the six months ended June 30, 1998, compared to $494,468 for the six months ended June 30, 1997, an increase of $90,449 18.29%. The increase was primarily due to costs related to an exterior painting project. Management expenses totaled $68,821 for the six months ended June 30, 1998, compared to $68,736 for the six months ended June 30, 1997, an increase of $85, or 0.12%. General and Administrative Expenses General and administrative expenses totaled $15,599 for the six months ended June 30, 1998 compared to $14,858 for the six months ended June 30, 1997, an increase of $741 or 4.99%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $273,440 for the six months ended June 30, 1998, compared to $283,358 for the six months ended June 30, 1997, a decrease of $9,918, or 3.50%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $93,000 for the year ended December 31, 1997, compared to a net loss of $15,000 for the year ended December 31, 1996. The increase in net loss of $78,000, or 520.00% was primarily the result of an increase in operating expenses offset by an increase in total revenue. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,754,000 for the year ended December 31, 1997, compared to $2,607,000 for the year ended December 31, 1996, an increase of $147,000, or 5.64%. This increase was primarily the result of an increase in occupancy. S-76 3174 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,231,000 for the year ended December 31, 1997, compared to $1,065,000 for the year ended December 31, 1996, an increase of $166,000 or 15.59%. The increase is due primarily to costs related to exterior repairs and replacement. Management expenses totaled $136,000 for the year ended December 31, 1997 compared to $128,000 for the year ended December 31, 1996. A difference of $8,000, or 6.25%. The increase resulted from an increase in rental revenues as management fees are calculated based on a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $67,000 for the year ended December 31, 1997 compared to $56,000 for the year ended December 31, 1996, an increase of $11,000 or 19.64%. The increase is primarily due to timing of audit fees and licenses & permits. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $620,000 for the year ended December 31, 1997, compared to $636,000 for the year ended December 31, 1996, a decrease of $16,000, or 2.52%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $15,000 for the year ended December 31, 1996, compared to a net loss of $186,592 for the year ended December 31, 1995. The decrease of $171,592, or 91.96% was primarily the result of an increase in total revenue. Revenues Rental and other property revenues from the partnership's property totaled $2,607,000 for the year ended December 31, 1996, compared to $2,452,186 for the year ended December 31, 1995, an increase of $154,814, or 6.31%. This due primarily to increased rental rates and occupancy levels. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,065,000 for the year ended December 31, 1996, compared to $1,080,765 for the year ended December 31, 1995, a decrease of $15,765 or 1.46%. Management expenses totaled $128,000 for the year ended December 31, 1996, compared to $123,433 for the year ended December 31, 1995, an increase of $4,567, or 3.70%. General and Administrative Expenses General and administrative expenses totaled $56,000 for the year ended December 31, 1996 compared to $58,959 for the year ended December 31, 1995, a decrease of $2,959 or 5.02%. The increase is primarily due to timing of audit fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $636,000 for the year ended December 31, 1996, compared to $649,275 for the year ended December 31, 1995, a decrease of $13,275, or 2.04%. S-77 3175 Liquidity and Capital Resources As of June 30, 1998, your partnership had $978,648 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 partners of your partnership are not liable to your partnership or the limited partners and are indemnified for any loss or damage resulting from any act or omission performed or omitted in good faith, which does not constitute fraud, gross negligence or willful misconduct, pursuant to the authority granted to them to promote the interests of your partnership. Moreover, the general partners are not liable to your partnership of the limited partner because any taxing authorities disallow or adjust any deduction or credits in your partnership income tax returns. 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 owned by AIMCO. See "Conflicts of Interest". The general partners and their affiliates will be indemnified for any loss or damage resulting from any act or omission performed or omitted in good faith pursuant to the authority granted to promote the interests of your partnership, which does not constitute fraud, gross negligence or willful misconduct. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $296,250.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 0 1995........................................................ 0 1996........................................................ 0 1997........................................................ 0 1998 (through June 30)...................................... 3,300
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there has been no units transferred in sale transactions S-78 3176 (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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, including reimbursement of expenses) in its capacity as general partner interest of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $14,778 1995........................................................ 15,217 1996........................................................ 17 1997........................................................ 21 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995............................................ $123,433 1996............................................ 128,000 1997............................................ 136,000 1998 (through June 30).......................... 68,822
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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-79 3177 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 audited financial statements of Rivercrest Apartments, Ltd. at December 31, 1997, 1996 and 1995 and for each of the years then ended, appearing in this Prospectus Supplement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-80 3178 RIVERCREST APARTMENTS, LTD. FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1997 TABLE OF CONTENTS Condensed Balance Sheet -- Federal Income Tax Basis as of June 30, 1998 (Unaudited)................................. F-2 Condensed Statements of Operations -- Federal Income Tax Basis for the six months ended June 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Statements of Cash Flows -- Federal Income Tax Basis for the six months ended June 30, 1998 and 1997 (Unaudited)............................................... F-4 Note A -- Basis of Presentation............................. F-5 Independent Auditors' Report................................ F-6 Balance Sheet as of December 31, 1997....................... F-7 Statement of Operations for the year ended December 31, 1997...................................................... F-8 Statement of Partners' Capital/(deficit) for the year ended December 31, 1997......................................... F-9 Statement of Cash Flows for the year ended December 31, 1997...................................................... F-10 Notes to Financial Statements............................... F-11 Independent Auditors' Report................................ F-16 Statement of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis....................... F-17 Statement of Revenues, Expenses and Changes in Partners' Deficit -- Federal Income Tax Basis....................... F-18 Statement of Cash Flow -- Federal Income Tax Basis.......... F-19 Notes to Financial Statements -- Federal Income Tax Basis... F-20 Independent Auditors' Report................................ F-23 Statement of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis....................... F-24 Statement of Revenues, Expenses and Changes in Partner's Deficit -- Federal Income Tax Basis....................... F-25 Statement of Cash Flow -- Federal Income Tax Basis.......... F-26 Notes to Financial Statements -- Federal Income Tax Basis... F-27 Independent Auditors' Report................................ F-30 Statement of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis....................... F-31 Statement of Revenues, Expenses and Changes in Partners' Deficit -- Federal Income Tax Basis....................... F-32 Statement of Cash Flow -- Federal Income Tax Basis.......... F-33 Notes to Financial Statements -- Federal Income Tax Basis... F-34
F-1 3179 RIVERCREST APARTMENTS CONDENSED BALANCE SHEET -- FEDERAL INCOME TAX BASIS JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 978,648 Receivables and Deposits.................................... 79,474 Restricted Escrows.......................................... 341,735 Other Assets................................................ 891,922 Investment Property: Land...................................................... 1,258,925 Building and related personal property.................... 14,979,196 ----------- 16,238,121 Less: Accumulated depreciation............................ (13,727,930) 2,510,191 ----------- ----------- Total Assets:..................................... $ 4,801,970 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 0 Other Accrued Liabilities................................... 56,292 Property Taxes Payable...................................... 87,419 Tenant Security Deposits.................................... 51,039 Notes Payable............................................... 6,812,275 Partners' Capital........................................... (2,205,055) ----------- Total Liabilities and Partners' Capital........... $ 4,801,970 ===========
F-2 3180 RIVERCREST APARTMENTS CONDENSED STATEMENTS OF OPERATIONS -- FEDERAL INCOME TAX BASIS
SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 ---------- ---------- (UNAUDITED) Revenues: Rental Income............................................. $1,274,603 $1,297,114 Other Income.............................................. 70,513 59,508 ---------- ---------- Total Revenues:................................... 1,345,116 1,356,622 Expenses: Operating Expenses........................................ 584,917 494,468 General and Administrative Expenses....................... 15,599 14,858 Depreciation Expense...................................... 369,500 369,500 Interest Expense.......................................... 273,440 283,358 Property Tax Expense...................................... 87,419 90,487 ---------- ---------- Total Expenses:................................... 1,330,875 1,252,671 Net Income........................................ $ 14,241 $ 103,951 ========== ==========
F-3 3181 RIVERCREST APARTMENTS CONDENSED STATEMENTS OF CASH FLOWS -- FEDERAL INCOME TAX BASIS
SIX MONTHS ENDED JUNE 30 -------------------- 1998 1997 --------- -------- (UNAUDITED) Operating Activities: Net Income (loss)......................................... $ 14,241 $103,951 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization............................. 370,969 400,397 Changes in accounts: Receivables and deposits and other assets.............. 18,845 (70,511) Accounts Payable and accrued expenses.................. (130,342) 70,792 --------- -------- Net cash provided by (used in) operating activities...................................... 273,713 504,629 --------- -------- Investing Activities Property improvements and replacements.................... (108,678) (141,007) Net (increase)/decrease in restricted escrows............. (4,038) (6,599) --------- -------- Net cash provided by (used in) investing activities....... (112,716) (147,606) --------- -------- Financing Activities Distributions to partners................................. -- -- Payments on mortgage...................................... (109,818) (101,805) --------- -------- Net cash provided by (used in) financing activities...................................... (109,818) (101,805) --------- -------- Net increase (decrease) in cash and cash equivalents...... 51,179 255,218 Cash and cash equivalents at beginning of year............ 927,469 519,916 --------- -------- Cash and cash equivalents at end of period........ $ 978,648 $775,134 ========= ========
F-4 3182 RIVERCREST APARTMENTS NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Rivercrest Apartments as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with the accounting basis for federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis for federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 3183 REPORT OF INDEPENDENT AUDITORS The Partners Rivercrest Apartments, Ltd. We have audited the accompanying balance sheet of Rivercrest Apartments, Ltd. (the "Partnership") as of December 31, 1997 and the related statements of operations, changes in partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rivercrest Apartments, Ltd., at December 31, 1997 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP August 31, 1998 Greenville, South Carolina F-6 3184 RIVERCREST APARTMENTS, LTD. BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 928 Receivables and deposits.................................... 94 Restricted escrows.......................................... 338 Other assets................................................ 56 Investment property (Notes B and D): Land...................................................... $ 1,259 Buildings and related personal property................... 14,870 ------- 16,129 Less accumulated depreciation............................... (7,491) 8,638 ------- ------- $10,054 ======= LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable.......................................... $ 222 Tenant security deposit liability......................... 54 Other liabilities......................................... 74 Mortgage note payable (Note B)............................ 6,922 ------- 7,272 Partners' capital/(deficit): General partners.......................................... $ (60) Limited partners (150 units issued and outstanding)....... 2,842 2,782 ------- ------- $10,054 =======
See accompanying notes. F-7 3185 RIVERCREST APARTMENTS, LTD. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 2,619 Other income.............................................. 121 ------- 2,740 Expenses: Operating................................................. $1,231 General and administrative................................ 70 Depreciation.............................................. 545 Interest.................................................. 620 Property taxes............................................ 190 2,656 ------ ------- Net income.................................................. $ 84 ======= Net income allocated to general partners (1%)............... $ 1 Net income allocated to limited partners (99%).............. 83 ------- $ 84 ======= Net income per limited partnership unit..................... $554.40 =======
See accompanying notes. F-8 3186 RIVERCREST APARTMENTS, LTD. STATEMENT OF CHANGES IN PARTNERS' CAPITAL YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ------ Capital/(deficit) at December 31, 1996...................... $(61) $2,759 $2,698 Net income................................................ 1 83 84 ---- ------ ------ Capital/(deficit) at December 31, 1997...................... $(60) $2,842 $2,782 ==== ====== ======
See accompanying notes. F-9 3187 RIVERCREST APARTMENTS, LTD. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net income................................................ $ 84 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 545 Amortization of loan costs and mortgage discount....... 66 Change in operating assets and liabilities: Receivables and deposits............................. 100 Other assets......................................... (10) Accounts payable..................................... 207 Tenant security deposit liabilities.................. (6) Other liabilities.................................... 14 ------ Net cash provided by operating activities................. 1,000 Cash flows used in investing activities Property improvements and replacements.................... (305) Deposits to restricted escrows............................ (19) ------ Net cash used in investing activities..................... (324) Cash flows used in financing activities Principal payments on mortgage notes payable.............. (208) ------ Net increase in cash...................................... 468 Cash and cash equivalents at December 31, 1996............ 460 ------ Cash and cash equivalents at December 31, 1997............ $ 928 ====== Supplemental disclosure of cash flow information Cash paid for interest expense............................ $ 555 ======
See accompanying notes. F-10 3188 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Rivercrest Apartments, Ltd. (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated November 30, 1983 and extending to December 31, 2013, unless terminated sooner. One hundred and fifty limited partnership units were issued. The Partnership owns and operates a 312-unit apartment complex, Rivercrest Apartments, in Roswell, Georgia. Investment Property Investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value of Financial Instruments The Partnership believes that the carrying amount of its financial instruments (except for long-term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long-term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. Loan Costs Loan costs of approximately $88,000 incurred with the financing of long-term debt are amortized on a straight-line basis over the life of the debt. Accumulated amortization is approximately $45,000 at December 31, 1997. These costs are included in "Other Assets". F-11 3189 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Restricted Escrow The Reserve Escrow was established to cover necessary repairs and replacements of existing improvements, debt service, and out-of-pocket expenses incurred for ordinary and necessary administrative tasks and payment of real estate taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) to the reserve account until the reserve account equals $1,000 per apartment unit or $312,000 in total. At December 31, 1997, the balance in this reserve account is approximately $338,000, which includes interest earned on such funds. Partnership Allocations Net earnings or loss, distributions to partners, and taxable income or loss are allocated to the partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. NOTE B -- LONG-TERM DEBT Long-term debt consists of the following:
(IN THOUSANDS) -------------- First Mortgage -- payable in monthly installments of approximately $62,000 including interest at 7.60% to October 2002, with a balloon payment of approximately $5,666,000 due in November 2002. The note is collateralized by pledge of land and building and all rents of the property..................................... $6,952 Second Mortgage -- payable in monthly installments of approximately $2,000 interest only at 7.60% to October 2002, with a balloon payment of approximately $243,000 due in November 2002. The note is collateralized by pledge of land and buildings and all rents of the property.......... 243 ------ 7,195 Less unamortized discount................................... (273) ------ Mortgage notes payable at December 31, 1997................. $6,922 ======
F-12 3190 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Partnership exercised interest rate buy-down options for Rivercrest Apartments, Ltd. when the debt was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $564,000 and is being amortized as a loan discount on the straight-line method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. Scheduled principal payments of mortgage notes payable subsequent to December 31, 1997 are as follows (in thousands): 1998....................................................... $ 224 1999....................................................... 241 2000....................................................... 261 2001....................................................... 281 2002....................................................... 6,188 ------ $7,195 ======
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $136 Reimbursements for services of affiliates................... 21
For the period of January 1, 1997, to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. Insignia entered into an Agreement and Plan of Merger, dated as of May 26, 1998, (as subsequently amended and restated, the "Merger Agreement") with Apartment Investment and Management Company ("AIMCO"), pursuant to which Insignia will merge its national residential property management operations and its controlling interest in Insignia Properties Trust with and into AIMCO, with AIMCO as the survivor. Consummation of the Merger, which is anticipated to occur in the third quarter of 1998, is subject to certain conditions, including the approval of the stockholders of Insignia (but not the approval of the stockholders of AIMCO). If the closing occurs, AIMCO will then control the General Partner of the Partnership. F-13 3191 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ------ ----------- ------------- Rivercrest Apartments Roswell, Georgia............................. $7,195 $1,259 $12,047 $2,823 ====== ====== ======= ======
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS ----------- ------ ----------- ------- ------------ -------- ------------- Rivercrest Apartments, Roswell, Georgia.......... $1,259 $14,870 $16,129 $7,491 11/01/83 5-30 ====== ======= ======= ======
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year.............................. $15,824 Property improvements..................................... 305 ------- Balance at end of year.................................... $16,129 ======= Accumulated Depreciation Balance at beginning of year.............................. $ 6,946 Additions charged to expense.............................. 545 ------- Balance at end of year.................................... $ 7,491 =======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $16,129,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $13,358,000. NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. F-14 3192 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following is a reconciliation of reported net income and Federal taxable loss (in thousands, except per unit data): Net income as reported...................................... $ 84 Add (deduct): Depreciation differences.................................. (194) Rental Income............................................. 14 Other..................................................... 3 ------- Net loss -- Federal income tax basis........................ $ (93) ======= Federal taxable loss per limited partnership unit........... $613.80 =======
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net assets as reported...................................... $ 2,782 Accumulated depreciation.................................... (5,867) Syndication fees............................................ 841 Other....................................................... 25 ------- Net deficiency -- tax basis................................. $(2,219) =======
NOTE F -- YEAR 2000 (UNAUDITED) The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. NOTE G EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-15 3193 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) REPORT OF INDEPENDENT AUDITORS The Partners Rivercrest Apartments, Ltd. We have audited the accompanying statement of assets, liabilities and partners' deficit -- Federal income tax basis of Rivercrest Apartments, Ltd. (the "Partnership") as of December 31, 1997, and the related statements of revenues, expenses and changes in partners' deficit -- Federal income tax basis and cash flows -- Federal income tax basis for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As more fully described in Note A, these financial statements have been prepared on the accounting basis used for Federal income tax purposes which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and partners' deficit of Rivercrest Apartments, Ltd. as of December 31, 1997 and its revenues, expenses, changes in partners' deficit and cash flows for the year then ended, on the basis of accounting described in Note A. /s/ ERNST & YOUNG LLP March 3, 1998 Greenville, South Carolina F-16 3194 RIVERCREST APARTMENTS, LTD. STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 928 Receivables and deposits.................................... 94 Restricted escrow........................................... 338 Deferred charges and other assets........................... 897 Investment property, at cost (Note B): Land...................................................... $ 1,259 Buildings and related personal property................... 14,870 -------- 16,129 Less accumulated depreciation............................. (13,358) 2,771 -------- ------- $ 5,028 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 222 Tenant security deposits.................................. 54 Other liabilities......................................... 49 Mortgage notes payable (Note B)........................... 6,922 ------- 7,247 Partners' deficit........................................... (2,219) ------- $ 5,028 =======
See accompanying notes. F-17 3195 RIVERCREST APARTMENTS, LTD. STATEMENT OF REVENUES, EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Revenues: Rental income............................................. $ 2,633 Other income.............................................. 121 ------- 2,754 Expenses: Operating................................................. $1,231 General and administrative................................ 67 Depreciation.............................................. 739 Interest.................................................. 620 Property taxes............................................ 190 2,847 ------ ------- Excess of expenses over revenues............................ (93) Partners' deficit at December 31, 1996...................... (2,126) Partners' deficit at December 31, 1997...................... $(2,219) =======
See accompanying notes. F-18 3196 RIVERCREST APARTMENTS, LTD. STATEMENT OF CASH FLOW -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Excess of expenses over revenues............................ $ (93) Adjustments to reconcile excess of expenses over revenues to net cash provided by operating activities: Depreciation.............................................. 739 Amortization of loan costs and mortgage discount.......... 66 Change in operating assets and liabilities: Receivables and deposits............................... 100 Deferred charges and other assets...................... (10) Accounts payable....................................... 207 Tenant security deposit liabilities.................... (6) Other liabilities...................................... (3) ------ Net cash provided by operating activities................... 1,000 CASH FLOWS USED IN INVESTING ACTIVITIES Property improvements and replacements...................... (305) Deposits to restricted escrows.............................. (19) ------ Net cash used in investing activities....................... (324) CASH FLOWS USED IN FINANCING ACTIVITIES Principal payments on mortgage notes payable................ (208) ------ Net increase in cash........................................ 468 Unrestricted cash at December 31, 1996...................... 460 ------ Unrestricted cash at December 31, 1997...................... $ 928 ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest expense.............................. $ 555 ======
See accompanying notes. F-19 3197 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Rivercrest Apartments, Ltd. (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated November 30, 1983 and extending to December 31, 2013, unless terminated sooner. The Partnership owns and operates a 312-unit apartment complex, Rivercrest Apartments, in Roswell, Georgia. Basis of Accounting The Partnership's financial statements are prepared using the tax accrual method of accounting as set forth in the Federal income tax code and regulations. This method of accounting differs from generally accepted accounting principles primarily in the timing of recognition of revenue and certain expenses, recognition of certain costs of the Project, methods of depreciation and useful lives of assets, and recognition and amortization of deferred fees. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Income Taxes The financial statements include only those assets and liabilities and revenues and expenses which relate to the business of the Partnership. No provision has been made for Federal income taxes since such taxes are the personal responsibility of the partners. Depreciation Under ACRS, depreciation is based on accelerated methods (1) for real property over periods of 15 years for additions prior to March 16, 1984, 18 years for additions after March 15, 1984 and before May 9, 1985 and 19 years for additions after May 8, 1985 and before January 1, 1987 and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the MACRS is used (1) for real property additions over 27 1/2 years and (2) for personal property additions over 7 years. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and includes them in "Receivables and deposits". Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Restricted Escrow The Reserve Escrow was established to cover necessary repairs and replacements of existing improvements, debt service, and out-of-pocket expenses incurred for ordinary and necessary administrative tasks and F-20 3198 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) payment of real estate taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) to the reserve account until the reserve account equals $1,000 per apartment unit or $312,000 in total. At December 31, 1997, the balance in this reserve account is approximately $338,000, which includes interest earned on such funds. Deferred Charges 1) Offering Costs Costs incurred in connection with the solicitation of equity capital of $841,000 have been capitalized and represent a deferred charge which will be expensed upon termination of the Partnership. 2) Loan Costs Loan costs of approximately $88,000 incurred with the refinancing of the mortgage notes payable are being amortized on a straight-line basis over the life of the loans. Accumulated amortization at December 31, 1997 is approximately $45,000. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Leases The Partnership generally leases apartment units for twelve-month terms or less. NOTE B -- LONG-TERM DEBT Long-term debt consists of the following (dollar amounts in thousands): First Mortgage -- payable in monthly installments of approximately $62, including interest at 7.60% to October 2002. At November 2002, a balloon payment representing the principal will be due and payable. The note is collateralized by pledge of land and building and all rents of the property. ................................... $6,952 Second Mortgage -- payable in monthly installments of approximately $2, interest only at 7.60% to October 2002. At November 2002, a balloon payment representing the principal will be due and payable. The note is collateralized by pledge of land and buildings and all rents of the property. ................................... 243 ------ 7,195 Less unamortized discount................................... (273) ------ Mortgage notes payable at December 31, 1997................. $6,922 ======
The Partnership exercised interest rate buy-down options for Rivercrest Apartments, Ltd. when the debt was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $564,000 and is being amortized as a loan discount on the straight-line method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. F-21 3199 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Scheduled principal payments of mortgage notes payable subsequent to December 31, 1997 are as follows (in thousands): 1998................................................ $ 224 1999................................................ 241 2000................................................ 261 2001................................................ 281 2002................................................ 6,188 ------ $7,195 ======
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.............................. $136 Reimbursements for services of affiliates............. 21
NOTE D EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-22 3200 REPORT OF INDEPENDENT AUDITORS The Partners Rivercrest Apartments, Ltd. We have audited the accompanying statement of assets, liabilities and partners' deficit -- Federal income tax basis of Rivercrest Apartments, Ltd. (the "Partnership") as of December 31, 1996, and the related statements of revenues, expenses and changes in partners' deficit -- Federal income tax basis and cash flows -- Federal income tax basis for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As more fully described in Note A, these financial statements have been prepared on the accounting basis used for Federal income tax purposes which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and partners' deficit of Rivercrest Apartments, Ltd. as of December 31, 1996 and its revenues, expenses, changes in partners' deficit and cash flows for the year then ended, on the basis of accounting described in Note A. /s/ ERNST & YOUNG LLP March 5, 1997 Greenville, South Carolina F-23 3201 RIVERCREST APARTMENTS, LTD. STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1996 (IN THOUSANDS) ASSETS Cash and cash equivalents: Unrestricted.............................................. $ 460 Restricted -- tenant security deposits.................... 60 Accounts receivable......................................... 6 Escrow for taxes............................................ 128 Restricted escrow........................................... 319 Deferred charges and other assets........................... 896 Investment property, at cost (Note B): Land...................................................... $ 1,259 Buildings and related personal property................... 14,566 -------- 15,825 Less accumulated depreciation............................. (12,620) 3,205 -------- ------- $ 5,074 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 15 Tenant security deposits.................................. 60 Other liabilities......................................... 52 Mortgage notes payable (Note B)........................... 7,073 ------- 7,200 Partners' deficit........................................... (2,126) ------- $ 5,074 =======
See accompanying notes. F-24 3202 RIVERCREST APARTMENTS, LTD. STATEMENT OF REVENUES, EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Revenues: Rental income............................................. $ 2,503 Other income.............................................. 104 ------- 2,607 Expenses: Operating................................................. $686 Maintenance............................................... 379 General and administrative................................ 56 Depreciation.............................................. 705 Interest.................................................. 636 Property taxes............................................ 160 2,622 ---- ------- Excess of expenses over revenues............................ (15) Partners' deficit at December 31, 1995...................... (2,111) ------- Partners' deficit at December 31, 1996...................... $(2,126) =======
See accompanying notes. F-25 3203 RIVERCREST APARTMENTS, LTD. STATEMENT OF CASH FLOW -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Excess of expenses over revenues............................ $ (15) Adjustments to reconcile excess of expenses over revenues to net cash provided by operating activities: Depreciation.............................................. 705 Amortization of loan costs and mortgage discount.......... 65 Change in operating assets and liabilities: Restricted cash........................................ (5) Escrow for taxes....................................... (70) Account receivable..................................... (4) Deferred charges and other assets...................... (3) Accounts payable....................................... (16) Tenant security deposit liabilities.................... 5 Other liabilities...................................... 2 ----- Net cash provided by operating activities................... 664 CASH FLOWS USED IN INVESTING ACTIVITIES Property improvements and replacements...................... (216) Withdrawals from restricted escrows......................... 13 Deposits to restricted escrows.............................. (11) ----- Net cash used in investing activities....................... (214) CASH FLOWS USED IN FINANCING ACTIVITIES Principal payments on mortgage notes payable................ (192) ----- Net increase in cash........................................ 258 Unrestricted cash at December 31, 1995...................... 202 ----- Unrestricted cash at December 31, 1996...................... $ 460 ===== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest expense.............................. $ 571 =====
See accompanying notes. F-26 3204 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Rivercrest Apartments, Ltd. (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated November 30, 1983 and extending to December 31, 2013, unless terminated sooner. The Partnership owns and operates a 312-unit apartment complex, Rivercrest Apartments, in Roswell, Georgia. Basis of Accounting The Partnership's financial statements are prepared using the tax accrual method of accounting as set forth in the Federal income tax code and regulations. This method of accounting differs from generally accepted accounting principles primarily in the timing of recognition of revenue and certain expenses, recognition of certain costs of the Project, methods of depreciation and useful lives of assets, and recognition and amortization of deferred fees. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Income Taxes The financial statements include only those assets and liabilities and revenues and expenses which relate to the business of the Partnership. No provision has been made for Federal income taxes since such taxes are the personal responsibility of the partners. Depreciation Under ACRS, depreciation is based on accelerated methods (1) for real property over periods of 15 years for additions prior to March 16, 1984, 18 years for additions after March 15, 1984 and before May 9, 1985 and 19 years for additions after May 8, 1985 and before January 1, 1987 and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the MACRS is used (1) for real property additions over 27 1/2 years and (2) for personal property additions over 7 years. Cash and Cash Equivalents -- Unrestricted The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and it considers these deposits to be restricted cash. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Restricted Escrow The Reserve Escrow was established to cover necessary repairs and replacements of existing improvements, debt service, and out-of-pocket expenses incurred for ordinary and necessary administrative tasks and F-27 3205 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) payment of real estate taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) to the reserve account until the reserve account equals $1,000 per apartment unit or $312,000 in total. At December 31, 1996, the balance in this reserve account is approximately $319,000, which includes interest earned on such funds. Deferred Charges 1) Offering Costs Costs incurred in connection with the solicitation of equity capital of $841,000 have been capitalized and represent a deferred charge which will be expensed upon termination of the Partnership. 2) Loan Costs Loan costs of approximately $88,000 incurred with the refinancing of the mortgage notes payable are being amortized on a straight-line basis over the life of the loans. Accumulated amortization at December 31, 1996 is approximately $36,000. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Leases The Partnership generally leases apartment units for twelve-month terms or less. NOTE B -- LONG-TERM DEBT Long-term debt consists of the following (dollar amounts in thousands): First Mortgage -- payable in monthly installments of approximately $62, including interest at 7.60% to October 2002. At November 2002, a balloon payment representing the principal will be due and payable. The note is collateralized by pledge of land and building and all rents of the property..................................... $7,159 Second Mortgage -- payable in monthly installments of approximately $2, interest only at 7.60% to October 2002. At November 2002, a balloon payment representing the principal will be due and payable. The note is collateralized by pledge of land and buildings and all rents of the property..................................... 243 ------ 7,402 Less unamortized discount................................... (329) ------ Mortgage notes payable at December 31, 1996................. $7,073 ======
The Partnership exercised interest rate buy-down options for Rivercrest Apartments, Ltd. when the debt was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $564,000 and is being amortized as a loan discount on the straight-line method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. Scheduled principal payments of mortgage notes payable subsequent to December 31, 1996 are as follows (in thousands): F-28 3206 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) 1997................................................ $ 208 1998................................................ 224 1999................................................ 241 2000................................................ 261 2001................................................ 281 Thereafter.......................................... 6,187 ------ $7,402 ======
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1996 (in thousands): Property management fees.............................. $128 Reimbursements for services of affiliates............. 17
NOTE D -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-29 3207 REPORT OF INDEPENDENT AUDITORS The Partners Rivercrest Apartments, Ltd. We have audited the accompanying statement of assets, liabilities and partners' deficit -- Federal income tax basis of Rivercrest Apartments, Ltd. (the "Partnership") as of December 31, 1995, and the related statements of revenues, expenses and changes in partners' deficit -- Federal income tax basis and cash flows -- Federal income tax basis for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note 1, these financial statements have been prepared on the accounting basis used for Federal income tax purposes which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and partners' deficit of Rivercrest Apartments, Ltd. as of December 31, 1995 and its revenues, expenses, changes in partners' deficit and cash flows for the year then ended, on the basis of accounting described in Note 1. /s/ ERNST & YOUNG LLP March 9, 1996 Greenville, South Carolina F-30 3208 RIVERCREST APARTMENTS, LTD. STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1995 ASSETS Cash: Unrestricted.............................................. $ 202,267 Restricted -- tenant security deposits.................... 54,933 Accounts receivable......................................... 1,674 Escrow for taxes............................................ 58,121 Restricted escrow........................................... 320,435 Deferred charges, net....................................... 901,786 Investment property, at cost (Note 2): Land...................................................... $ 1,258,925 Buildings and related personal property................... 14,350,109 ----------- 15,609,034 Less accumulated depreciation............................. 11,914,681 3,694,353 ----------- ----------- $ 5,233,569 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 30,501 Tenant security deposits.................................. 54,933 Other liabilities......................................... 50,314 Mortgage notes payable (Note 2)........................... 7,209,220 Partners' deficit........................................... (2,111,399) ----------- $ 5,233,569 ===========
See accompanying notes. F-31 3209 RIVERCREST APARTMENTS, LTD. STATEMENT OF REVENUES, EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1995 Revenues: Rental income............................................. $ 2,345,775 Other income.............................................. 106,411 ----------- 2,452,186 Expenses: Operating................................................. $573,762 Maintenance............................................... 383,570 Property management fees (Note 3)......................... 123,433 General and administrative................................ 58,959 Depreciation.............................................. 697,192 Interest.................................................. 649,275 Property taxes............................................ 152,587 2,638,778 -------- ----------- Excess of expenses over revenues............................ (186,592) Partners' deficit at December 31, 1994...................... (1,924,807) Partners' deficit at December 31, 1995...................... $(2,111,399) ===========
See accompanying notes. F-32 3210 RIVERCREST APARTMENTS, LTD. STATEMENT OF CASH FLOW -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Excess of expenses over revenues............................ $(186,592) Adjustments to reconcile excess of expenses over revenues to net cash provided by operating activities: Depreciation.............................................. 697,192 Amortization of loan costs and mortgage discount.......... 65,220 Change in operating assets and liabilities: Restricted cash........................................ (1,630) Escrow deposits for taxes.............................. 20,991 Account receivable..................................... (1,674) Accounts payable....................................... (256) Tenant security deposit liabilities.................... 3,584 Other liabilities...................................... (1,692) --------- Net cash provided by operating activities................... 595,143 CASH FLOWS USED IN INVESTING ACTIVITIES Property improvements and replacements...................... (298,179) Receipts from restricted escrows............................ 10,000 Deposits to restricted escrows.............................. (19,649) --------- Net cash used in investing activities....................... (307,828) CASH FLOWS USED IN FINANCING ACTIVITIES Principal payments on mortgage notes payable................ (178,360) --------- Net increase in cash........................................ 108,955 Cash at December 31, 1994................................... 93,312 --------- Cash at December 31, 1995................................... $ 202,267 ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest expense.............................. $ 584,621 =========
See accompanying notes. F-33 3211 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1995 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Rivercrest Apartments, Ltd. (the "Partnership") was organized as a limited partnership under the laws of the State of South Carolina pursuant to a Certificate and Agreement of Limited Partnership dated November 30, 1983 and extending to December 31, 2013, unless terminated sooner. The Partnership owns and operates a 312-unit apartment complex, Rivercrest Apartments, in Roswell, Georgia. Basis of Accounting The Partnership's financial statements are prepared using the tax accrual method of accounting as set forth in the Federal income tax code and regulations. This method of accounting differs from generally accepted accounting principles primarily in the timing of recognition of revenue and certain expenses, recognition of certain costs of the Project, methods of depreciation and useful lives of assets, and recognition and amortization of deferred fees. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Depreciation Under ACRS, depreciation is based on accelerated methods (1) for real property over periods of 15 years for additions prior to March 16, 1984, 18 years for additions after March 15, 1984 and before May 9, 1985 and 19 years for additions after May 8, 1985 and before January 1, 1987 and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the MACRS is used (1) for real property additions over 27 1/2 years and (2) for personal property additions over 7 years. Restricted Escrow The Reserve Escrow was established with the refinancing proceeds for the refinanced property. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, and out-of-pocket expenses incurred for ordinary and necessary administrative tasks and payment of real estate taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) from the refinanced property to the reserve account until the reserve account equals $1,000 per apartment unit or $312,000 in total. At December 31, 1995 the balance in this reserve account is $320,435. Deferred Charges 1) Offering Costs Costs incurred in connection with the solicitation of equity capital of $840,823 have been capitalized and represent a deferred charge which will be expensed upon termination of the Partnership. F-34 3212 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) 2) Loan Costs In connection with the refinancing of certain mortgage notes payable, loan costs of $87,730 were incurred which are being amortized on a straight-line basis over the life of the loans. Accumulated amortization at December 31, 1995 was $26,767. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Leases The Partnership generally leases apartment units for twelve-month terms or less. 2. LONG-TERM DEBT First Mortgage -- payable in monthly installments of $62,042, including interest at 7.60% to October 2002. At November 2002, a balloon payment representing the principal will be due and payable. The note is collateralized by pledge of land and building and all rents of the property..................................... $7,351,535 Second Mortgage -- payable in monthly installments of $1,540, interest only at 7.60% to October 2002. At November 2002, a balloon payment representing the principal will be due and payable. The note is collateralized by pledge of land and buildings and all rents of the property..................................... 243,117 ---------- 7,594,652 Less unamortized discount................................... 385,432 ---------- Mortgage notes payable at December 31, 1995................. $7,209,220 ==========
The Partnership exercised interest rate buy-down options for Rivercrest Apartments, Ltd. when the debt was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $564,048 and is being amortized as a loan discount on the straight-line method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. Scheduled principal payments of mortgage notes payable subsequent to December 31, 1995 are as follows: 1996............................................. $ 192,398 1997............................................. 207,540 1998............................................. 223,874 1999............................................. 241,494 2000............................................. 260,501 Thereafter....................................... 6,468,845 ---------- $7,594,652 ==========
F-35 3213 RIVERCREST APARTMENTS, LTD. NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) 3. TRANSACTIONS WITH AFFILIATED PARTIES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1995: Property management fees.......................... $123,433 Reimbursements for services of affiliates......... 15,217
4. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-36 3214 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 3215 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 3216 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 September , 1998 A-3 3217 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF SALEM ARMS OF AUGUSTA 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 3218 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 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 Salem Arms of Augusta 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-35 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-36 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41 DESCRIPTION OF PREFERRED OP UNITS.............. S-41 General...................................... S-41 Ranking...................................... S-42 Distributions................................ S-42
PAGE ---- Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 Certain Tax Consequences to Non-Tendering and Partially-Tendering Unitholders............ S-53 VALUATION OF UNITS............................. S-54 FAIRNESS OF THE OFFER.......................... S-55 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-55 Fairness to Unitholders who Tender their Units...................................... S-56 Fairness to Unitholders who do not Tender their Units................................ S-57 Comparison of Consideration to Alternative Consideration.............................. S-57 Allocation of Consideration.................. S-58 STANGER ANALYSIS............................... S-58 Experience of Stanger........................ S-59 Summary of Materials Considered.............. S-59 Summary of Reviews........................... S-59 Conclusions.................................. S-60 Assumptions, Limitations and Qualifications............................. S-60 Compensation and Material Relationships...... S-61 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71 YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72 Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-72
i 3219
PAGE ---- Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions and Transfers of Units......... S-77 Beneficial Ownership of Interests in Your Partnership................................ S-77
PAGE ---- Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 3220 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 Salem Arms of Augusta 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 3221 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 3222 - 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 $.40 per unit 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). 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 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. 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 S-3 3223 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer 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. In addition, 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 3224 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 100% of 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? 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: 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 S-5 3225 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 3226 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. 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. 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 5 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. 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 S-7 3227 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. 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 Code. The particular tax consequences to you of the exchange 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 3228 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the 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 3229 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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 reaffirmed 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 3230 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, 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 3231 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited Partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 3232 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 3233 - 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 3234 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 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 S-15 3235 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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. S-16 3236 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 3237 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 is not subject to such limitations. 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 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 generated in that capacity. The property manager received management fees of $47,992 in 1996, $50,739 in 1997 and $26,057 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 Your Partnership and its Property. Salem Arms of Augusta Limited Partnership is a South Carolina limited partnership which was formed on July 10, 1974 for the purpose of owning and operating a single S-18 3238 apartment property located in Augusta, Georgia, known as "Salem Arms of Augusta". Salem Arms of Augusta consists of 136 apartment units. Your partnership has no employees. Property Management. Since December 1990, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2014, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $1,272,189, payable to Reilly Mortgage, which bears interest at a rate of 8.50%. The mortgage debt is due in July 2012. Your partnership's agreement of limited partnership prohibit your general partner from lending funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 3239 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, which is incorporated by reference herein. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P.'S AIMCO PROPERTIES, L.P. PREDECESSORS(a) ---------------------------------------------------------------------- -------------------------- FOR THE FOR THE PERIOD PERIOD JULY 29, JANUARY 10, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 1994 FOR THE YEAR ENDED JUNE 30, DECEMBER 31, THROUGH THROUGH ENDED --------------------- ------------------------------- DECEMBER 31, JULY 28, DECEMBER 31, 1998 1997 1997 1996 1995 1994 1994(b) 1993 --------- --------- --------- -------- -------- ------------ ----------- ------------ (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 $ 5,805 $ 8,056 Property operating expenses................ (59,643) (31,160) (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) --------- --------- --------- -------- -------- --------- ------- -------- 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) -- -- -- Other assets, depreciation and amortization............ (3) (161) (453) (218) (168) (150) (146) (204) Owner and seller bonuses................. -- -- -- -- -- -- (204) (468) Amortization of management company goodwill........ -- -- (948) (500) (428) -- -- -- --------- --------- --------- -------- -------- --------- ------- -------- 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 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 (1,463) 627 Gain on disposition of properties.............. 2,526 -- 2,720 44 -- -- -- -- Provision for income taxes................... -- -- -- -- -- -- (36) (336) --------- --------- --------- -------- -------- --------- ------- -------- Income (loss) before extraordinary item...... 38,524 11,733 32,966 15,673 14,988 7,702 (1,499) 291 Extraordinary item -- early extinguishment of debt.................... -- (269) (269) -- -- -- -- -- --------- --------- --------- -------- -------- --------- ------- -------- Net income (loss)......... $ 38,524 $ 11,464 $ 32,697 $ 15,673 $ 14,988 $ 7,702 $(1,499) $ 291 ========= ========= ========= ======== ======== ========= ======= ======== OTHER INFORMATION: 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 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 OP Unit................. $ 0.61 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 N/A N/A Diluted earnings per Common OP Unit.......... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 N/A N/A Distributions paid per Common OP Unit.......... $ 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)
S-20 3240
AIMCO PROPERTIES, L.P.'S AIMCO PROPERTIES, L.P. PREDECESSORS(a) ---------------------------------------------------------------------- -------------------------- FOR THE FOR THE PERIOD PERIOD JULY 29, JANUARY 10, FOR THE SIX MONTHS FOR THE YEAR ENDED 1994 1994 FOR THE YEAR ENDED JUNE 30, DECEMBER 31, THROUGH THROUGH ENDED --------------------- ------------------------------- DECEMBER 31, JULY 28, DECEMBER 31, 1998 1997 1997 1996 1995 1994 1994(b) 1993 --------- --------- --------- -------- -------- ------------ ----------- ------------ (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 $(1,032) $ 14,114 Funds from operations(e).... 83,657 28,441 81,155 35,185 25,285 9,391 N/A N/A Weighted average number of Common OP Units outstanding............... 51,478 21,590 29,119 14,994 11,461 10,920 N/A N/A BALANCE SHEET INFORMATION: 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 33,270 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................... 1,314,475 644,457 808,530 522,146 268,692 141,315 40,873 41,893 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 (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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 3241 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 the exchange offers.
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............................. (6,634) (20,663) -------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) -------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) -------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- -------- --------- Net income........................................ $ 10,579 $ (38,135) ======== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 3242
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 3243 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 3244 SUMMARY FINANCIAL INFORMATION OF SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP The summary financial information of Salem Arms of Augusta Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Salem Arms of Augusta 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 of Your Partnership" included herein. See "Index to Financial Statements." SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues..................... $ 376,480 $ 375,700 $ 785,909 $ 729,073 $ 771,804 $ 766,092 $ 720,935 Net Income/(Loss).................. 61,134 63,708 54,362 82,234 134,423 98,781 77,152 BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation..................... $ 751,689 $ 769,826 $ 774,453 $ 757,616 $ 771,372 $ 771,988 $ 733,648 Total Assets....................... 1,130,017 1,118,269 1,069,472 1,061,823 1,017,489 992,086 885,638 Mortgage Notes Payable, including Accrued Interest................. 1,278,219 1,323,080 1,301,124 1,344,125 1,383,516 1,420,068 1,453,651 Partners Capital/(Deficit)......... $ (194,910) $ (241,262) $ (255,893) $ (306,398) $ (384,479) $ (489,040) $ (587,821)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $0.40
S-25 3245 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. 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 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 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. S-26 3246 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 Code. 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 therefore 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 apartment property. In contrast, the AIMCO Operating Partnership is in the business of acquiring, S-27 3247 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25, and the 1998 distributions of $0.00 with respect to your units, 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 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 3248 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 prohibits any transfer of units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the offer. MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. S-29 3249 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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. Alternatively, your only 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 would 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 apartment 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. S-30 3250 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 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 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 3251 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 3252 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 3253 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. 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 S-34 3254 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." 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. 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. S-35 3255 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, (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 9:00 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 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, Denver, Colorado 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. S-36 3256 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-37 3257 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 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 S-38 3258 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 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 S-39 3259 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-40 3260 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. 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. DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. S-41 3261 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 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 S-42 3262 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 payment. 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 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 S-43 3263 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-44 3264 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-45 3265 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-46 3266 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-47 3267 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-48 3268 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-49 3269 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 3270 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-51 3271 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 3272 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 UNITHOLDERS 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 unitholders who do not tender all of their units (a "Remaining Unitholders") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Unitholder will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Unitholders in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Unitholder'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 Unitholders 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 Unitholders 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 unitholder 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 unitholders. In the case of a Remaining Unitholder 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 unitholder's taxable income for the year of Termination. S-53 3273 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-54 3274 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-55 3275 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 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, a third party expert, 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 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions of $2.25 with respect to the Common OP Units and the 1998 distributions of $0.00 with respect to your units, distributions with respect to the Preferred OP Units and Common OP Units being offered are expected to be , immediately following the 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 S-56 3276 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................................ Not available Estimated Liquidation Proceeds............................ $
S-57 3277 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 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-1 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 "-- Fairness Opinion -- 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-58 3278 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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 September 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 S-59 3279 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 property was 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 S-60 3280 value of the partnership's property 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 property 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 property 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'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-1. 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 $9,000 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-61 3281 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Salem Arms of Augusta. 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 2014. 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 develop, operate and manage your partnership's conduct any business that may be lawfully conducted by property. Subject to restrictions contained in your a limited partnership organized pursuant to the partnership's agreement of limited partnership, your Delaware Revised Uniform Limited Partnership Act (as partnership may do all things necessary for or amended from time to time, or any successor to such incidental to the protection and benefit of your statute) (the "Delaware Limited Partnership Act"), partnership, including, borrowing funds and creating provided that such business is to be conducted in a 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-62 3282 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity Your partnership's agreement of limited partnership The general partner is authorized to issue additional does not provide for the issuance additional limited partnership interests in the AIMCO Operating partnership interests in your partnership other than Partnership for any partnership purpose from time to those that have already been purchased at the time of time to the limited partners and to other persons, and the execution of your partnership's agreement of to admit such other persons as additional limited limited partnership. The capital contributions of the partners, on terms and conditions and for such capital limited partners need not be equal. contributions as may be established by the general partner in its sole discretion. The net capital contribution need not be equal for all OP Unitholders. No action or consent by the 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 is The AIMCO Operating Partnership may lend or contribute silent as to any restrictions on contracting with the funds or other assets to its subsidiaries or other general partner or its affiliates. persons in which it has an equity investment, and such persons may borrow funds from the AIMCO Operating Partnership, on terms and conditions established in the sole and absolute discretion of the general partner. To the extent consistent with the business purpose of the AIMCO Operating Partnership and the permitted activities of the general partner, the AIMCO Operating Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with the AIMCO Operating 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 or issue evidences of indebtedness in restrictions on borrowings, and the general partner has furtherance of any or all of the objects of your full power and authority to borrow money on behalf of partnership's business and to secure the same by the AIMCO Operating Partnership. The AIMCO Operating mortgage, pledge or other lien. 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.
S-63 3283 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 the limited partners or their duly authorized with a statement of the purpose of such demand and at representative to inspect and examine the books of your such OP Unitholder's own expense, to obtain a current partnership at all times at the principal office of list of the name and last known business, residence or your partnership. mailing address of the general partner and each other OP Unitholder.
Management Control The general partner of your partnership authorized to All management powers over the business and affairs of do any and all things necessary and proper of the the AIMCO Operating Partnership are vested in AIMCO-GP, accomplishment of the objection enumerated in your Inc., which is the general partner. No OP Unitholder partnership's agreement of limited partnership or has any right to participate in or exercise control or necessary or incident to the protection and benefit of management power over the business and affairs of the your partnership. No limited partner may take part in AIMCO Operating Partnership. The OP Unitholders have the conduct or control of the business of your the right to vote on certain matters described under partnership and no limited partners have the right or "Comparison of Ownership of Your Units and AIMCO OP authority to act for or bind your partnership. 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 in damages or partner is not liable to the AIMCO Operating otherwise to any of the partners for any acts performed Partnership for losses sustained, liabilities incurred by it in good faith within the scope of the authority or benefits not derived as a result of errors in conferred on it by your partnership's agreement of judgment or mistakes of fact or law of any act or limited partnership. Your partnership's agreement of omission if the general partner acted in good faith. limited partnership does not provide for the The AIMCO Operating Partnership Agreement provides for indemnification of the general partner or its indemnification of AIMCO, or any director or officer of affiliates. AIMCO (in its capacity as the previous general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware 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
S-64 3284 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 Your partnership's agreement of limited partnership Except in limited circumstances, the general partner does not provide for the removal of the general has exclusive management power over the business and partner. The general partner may resign and a affairs of the AIMCO Operating Partnership. The general substitute general partner may be elected with the partner may not be removed as general partner of the consent of the limited partners holding 51% of the AIMCO Operating Partnership by the OP Unitholders with outstanding units. A limited partner may not transfer or without cause. Under the AIMCO Operating Partnership its units without the consent of the general partner. Agreement, the general partner may, in its sole 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 Amendments to your partnership's agreement of limited With the exception of certain circumstances set forth partnership must be approved by the general partner and in the AIMCO Operating Partnership Agreement, whereby the limited partners owning at least 51% of the units. the general partner may, without the consent of the OP Unitholders, amend the AIMCO Operating Partnership Agreement, amendments to the AIMCO Operating Partnership Agreement require the consent of the holders of a majority of the outstanding Common OP Units, excluding AIMCO and certain other limited exclusions (a "Majority in Interest"). Amendments to the AIMCO Operating Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to compensation for additional services nership is responsible for all expenses incurred rendered. 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-65 3285 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under South Carolina law, the limited partners are not Except for fraud, willful misconduct or gross liable directly or indirectly for debts, obligations negligence, no OP Unitholder has personal liability for and liabilities of your partnership. However, if a the AIMCO Operating Partnership's debts and limited partner takes actions on behalf of your obligations, and liability of the OP Unitholders for partnership, such limited partner will be responsible the AIMCO Operating Partnership's debts and obligations for any liability which may result from such actions. 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 The general partner of your partnership must use its Unless otherwise provided for in the relevant best efforts to further the interests of your partnership agreement, Delaware law generally requires partnership, but it is not prevented from engaging in a general partner of a Delaware limited partnership to other businesses. adhere to fiduciary duty standards under which it owes its limited partners the highest duties of good faith, fairness and loyalty and which generally prohibit such general partner from taking any action or engaging in any transaction as to which it has a conflict of interest. The AIMCO Operating Partnership Agreement expressly authorizes the general partner to enter into, on behalf of the AIMCO 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-66 3286 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, the applicable law or in the AIMCO ship Agreement, the OP Unitholders approval of holders of a 66% of the Operating Partnership Agreement, have voting rights only with outstanding units is required to the holders of the Preferred OP respect to certain limited matters terminate your partnership. Units will have the same voting such as certain amendments and However, if your partnership is rights as holders of the Common OP termination of the AIMCO Operating dissolved, any group of partner Units. See "Description of OP Partnership Agreement and certain owning at least 60% of the total Units" in the accompanying transactions such as the partnership interests may reform Prospectus. So long as any institution of bankruptcy your partnership and continue in Preferred OP Units are outstand- proceedings, an assignment for the business under arrangements which ing, in addition to any other vote benefit of creditors and certain make proper provisions for its or consent of partners required by transfers by the general partner of liabilities. The consent of the law or by the AIMCO Operating its interest in the AIMCO Operating limited partners owning Partnership Agree- Part-
S-67 3287 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS 51% of the outstanding units is ment, the affirmative vote or nership or the admission of a necessary to approve the withdrawal consent of holders of at least 50% successor general partner. of the general partner and the of the outstanding Preferred OP election of a substitute general Units will be necessary for Under the AIMCO Operating Partner- partner. Amendments to your effecting any amendment of any of ship Agreement, the general partner partnership's agreement of limited the provisions of the Partnership has the power to effect the partnership require both the Unit Designation of the Preferred acquisition, sale, transfer, consent of the general partner and OP Units that materially and exchange or other disposition of the limited partners owing 51% of adversely affects the rights or any assets of the AIMCO Operating the units. preferences of the holders of the Partnership (including, but not Preferred OP Units. The creation or limited to, the exercise or grant The general partner may cause the issuance of any class or series of of any conversion, option, dissolution of your partnership by partnership units, including, privilege or subscription right or retiring. If another general without limitation, any partner- any other right available in partner remains, it may elect to ship units that may have rights connection with any assets at any continue your partnership. If there senior or superior to the Preferred time held by the AIMCO Operating is no general partner remaining, OP Units, shall not be deemed to Partnership) or the merger, the holders of a majority of the materially adversely affect the consolidation, reorganization or units may vote to reform your rights or preferences of the other combination of the AIMCO partnership and elect a new general holders of Preferred OP Units. With Operating Partnership with or into partner to continue the business of respect to the exercise of the another entity, all without the your partnership. Upon such above described voting rights, each consent of the OP Unitholders. occurrence, your partnership will Preferred OP Units shall have one dissolve and all of the assets and (1) vote per Preferred OP Unit. The general partner may cause the liabilities of your partnership dissolution of the AIMCO Operating will be contributed to a new Partnership by an "event of partner which will be formed and withdrawal," as defined in the all parties to your partnership's Delaware Limited Partnership Act agreement of limited partnership (including, without limitation, will become parties to such new bankruptcy), unless, within 90 days partners, and unless otherwise after the withdrawal, holders of a agreed to by the holder of a "majority in interest," as defined majority of the units outstanding, in the Delaware Limited Partnership your partnership's agreement of Act, agree in writing, in their limited partnership will constitute sole and absolute discretion, to the limited partnership agreement continue the business of the AIMCO of such new partnership. 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- Your partnership has made $ per Preferred OP Unit; tribute quarterly all, or such distributions in the past and is provided, however, that at any time portion as the general partner may projected to made distributions in and from time to time on or after in its sole and absolute discretion 1998. the fifth anniversary of the issue determine, of Available Cash (as date of the Preferred OP Units, the defined in the AIMCO Operating AIMCO Operating Partnership may Partnership Agreement) generated by 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. Holders of any other Pre-
S-68 3288 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 Upon receiving an offer to purchase There is no public market for the There is no public market for the units held by a limited partner, Preferred OP Units and the OP Units. The AIMCO Operating Part- such limited partner must first Preferred OP Units are not listed nership Agreement restricts the offer to sell such units to the on any securities exchange. The transferability of the OP Units. corporate general partner for a Preferred OP Units are subject to Until the expiration of one year period of twenty days on the same restrictions on transfer as set from the date on which an OP terms as the offer received. If the forth in the AIMCO Operating Unitholder acquired OP Units, corporate general partner does not Partnership Agreement. subject to certain exceptions, such exercise the right to purchase such OP Unitholder may not transfer all units, the limited partner may Pursuant to the AIMCO Operating or any portion of its OP Units to accept the offer and transfer such Partnership Agreement, until the any transferee without the consent units to a transferee if: (1) such expiration of one year from the of the general partner, which transferee is not a minor, insane date on which a holder of Preferred consent may be withheld in its sole or incompetent, (2) the general OP Units acquired Preferred OP and absolute discretion. After the partner consents, which consent may Units, subject to certain expiration of one year, such OP not be unreasonably withheld, (3) exceptions, such holder of Unitholder has the right to the transferor secures for the Preferred OP Units may not transfer transfer all or any portion of its corporate general partner an all or any portion of its Pre- OP Units to any person, subject to opinion of counsel satisfactory to ferred OP Units to any transferee the satisfaction of certain such general partner that such without the consent of the general conditions specified in the AIMCO transfer is exempt from or partner, which consent may be Operating Partnership Agreement, otherwise in compliance with withheld in its sole and absolute including the general partner's applicable securities laws, (4) an discretion. After the expiration of right of first refusal. See appropriate instrument of one year, such holders of Preferred "Description of OP Units -- conveyance is executed, (5) the OP Units has the right to transfer Transfers and Withdrawals" in the transferee has executed your all or any portion of its Preferred accompanying Prospectus. partnership's agreement of limited OP Units to any person, subject to partnership evidenc- the satisfaction of
S-69 3289 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ing its acceptance and agreement of certain conditions specified in the After the first anniversary of its terms and (6) the corporate AIMCO Operating Partnership Agree- becoming a holder of Common OP general partner has made ment, including the general Units, an OP Unitholder has the appropriate changes to your partner's right of first refusal. right, subject to the terms and partnership's agreement of limited conditions of the AIMCO Operating partnership. Notwithstanding the After a one-year holding period, a Partnership Agreement, to require foregoing, a limited partner may holder may redeem Preferred OP the AIMCO Operating Partnership to transfer by gift or inter vivos Units and receive in exchange redeem all or a portion of the trust to or for the benefit of his therefor, at the AIMCO Operating Common OP Units held by such party immediate family. 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 There are no redemption rights cash in an amount equal to the Common Stock. See "Description of associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-70 3290 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives no fee for their services as general partner from your partnership but may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $47,992 in 1996, $50,739 in 1997 and $26,057 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's 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'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 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-71 3291 YOUR PARTNERSHIP GENERAL Salem Arms of Augusta Limited Partnership is a South Carolina limited partnership. Insignia acquired your partnership in December 1990. AIMCO acquired Insignia in October, 1998. There are currently a total of 15 limited partners of your partnership and a total of 9,500 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on July 10, 1974 for the purpose of owning and operating a single apartment property located in Augusta, Georgia, known as "Salem Arms of Augusta." Your partnership's property consists of 136 apartment units. There are 36 two-bedroom apartments and 100 three-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 91.18% in 1996 and 91.18% in 1997. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1990, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $47,992, $50,739 and $26,057, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2014 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All S-72 3292 capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $1,272,189, payable to Reilly Mortgage, which bears interest at a rate of 8.50%. The mortgage debt is due in July 2012. Your partnership's agreement of limited partnership does not prohibit the general partner of your partnership from lending funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 3293 Below is selected financial information for Salem Arms of Augusta Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 241,285 $ 227,048 $ 88,317 $ 162,290 $ 105,420 $ 120,057 $ 55,277 Land & Building.............. 2,811,318 2,746,684 2,792,696 2,693,088 2,633,796 2,569,113 2,465,177 Accumulated Depreciation..... (2,059,629) (1,976,858) (2,018,243) (1,935,472) (1,862,424) (1,797,125) (1,731,529) Other Assets................. 137,043 121,395 206,702 141,917 140,697 100,041 96,713 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 1,130,017 $ 1,118,269 $ 1,069,472 $ 1,061,823 $ 1,017,489 $ 992,086 $ 885,638 =========== =========== =========== =========== =========== =========== =========== LIABILITIES AND PARTNERS' DEFICIT Mortgage & Accrued Interest................... $ 1,278,219 $ 1,323,080 $ 1,301,124 $ 1,344,125 $ 1,383,516 $ 1,420,068 $ 1,453,651 Other Liabilities............ 46,708 36,451 24,241 24,096 18,452 61,058 19,808 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 1,324,927 1,359,531 1,325,365 1,368,221 1,401,968 1,481,126 1,473,459 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $ (194,910) $ (241,262) $ (255,893) $ (306,398) $ (384,479) $ (489,040) $ (587,821) =========== =========== =========== =========== =========== =========== ===========
SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue..................... $ 357,398 $ 358,147 $ 748,110 $ 697,417 $ 743,093 $ 734,618 $ 704,581 Other Income....................... 19,082 17,553 37,799 31,656 28,711 31,474 16,354 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. 376,480 375,700 785,909 729,073 771,804 766,092 720,935 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 119,596 112,578 299,863 247,987 257,584 276,972 263,959 General & Administrative........... 80,955 84,550 201,021 177,537 163,527 174,646 173,784 Depreciation....................... 41,386 41,386 82,771 73,048 65,299 65,596 53,774 Interest Expense................... 54,474 56,334 111,758 115,250 118,204 121,176 123,899 Property Taxes..................... 18,935 17,144 36,134 33,017 32,767 28,921 28,367 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ 315,346 311,992 731,547 646,839 637,381 667,311 643,783 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income................ $ 61,134 $ 63,708 $ 54,362 $ 82,234 $ 134,423 $ 98,781 $ 77,152 ========== ========== ========== ========== ========== ========== ==========
S-74 3294 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $61,134 for the six months ended June 30, 1998, compared to $63,708 for the six months ended June 30, 1997. This is a decrease in net income of $ 2,574, or 4.04%. This is due primarily to increased operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $376,480 for the six months ended June 30, 1998, compared to $375,700 for the six months ended June 30, 1997, an increase of $780, or .21%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $119,596 for the six months ended June 30, 1998, compared to $112,578 for the six months ended June 30, 1997, an increase of $7,018 or 6.23%. This increase is primarily due to an increase in utilities expense and repairs and maintenance expense. Management expenses totaled $26,057 for the six months ended June 30, 1998, compared to $25,740 for the six months ended June 30, 1997, an increase of $317, or 1.23%. General and Administrative Expenses General and administrative expenses totaled $80,955 for the six months ended June 30, 1998 compared to $84,550 for the six months ended June 30, 1997, a decrease of $3,595 or 4.25%. Interest Expense Interest expense totaled $54,474 for the six months ended June 30, 1998, compared to $56,334 for the six months ended June 30, 1997, a decrease of $1,860, or 3.30%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $54,362 for the year ended December 31, 1997, compared to $82,234 for the year ended December 31, 1996. The decrease in net income of $27,872, or 33.89% was primarily the result of increased expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $785,909 for the year ended December 31, 1997, compared to $729,073 for the year ended December 31, 1996, a increase of $56,836, or 7.80%. This is primarily due to increased occupancy levels. S-75 3295 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $299,863 for the year ended December 31, 1997, compared to $247,987 for the year ended December 31, 1996, an increase of $51,876 or 20.92%. This is primarily due to non-capitalized costs associated with exterior rehabilitation projects. Management expenses totaled $50,739 for the year ended December 31, 1997, compared to $47,992 for the year ended December 31, 1996, an increase of $2,747, or 5.72%. The increase resulted from increased occupancy levels. General and Administrative Expenses General and administrative expenses totaled $201,021 for the year ended December 31, 1997 compared to $177,537 for the year ended December 31, 1996, an increase of $23,484 or 13.23%. The increase is primarily due to training & travel expense as well as office & computer supply expenses. Interest Expense Interest expense totaled $111,758 for the year ended December 31, 1997, compared to $115,250 for the year ended December 31, 1996, a decrease of $3,492, or 3.03%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $82,234 for the year ended December 31, 1996, compared to $134,423 for the year ended December 31, 1995. The decrease in net income of $52,189, or 38.82% was primarily the result of lower rental revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $729,073 for the year ended December 31, 1996, compared to $771,804 for the year ended December 31, 1995, a decrease of $42,731, or 5.54%. This is primarily due to reduced occupancy levels. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $247,987 for the year ended December 31, 1996, compared to $257,584 for the year ended December 31, 1995, a decrease of $9,597 or 3.73%. Management expenses totaled $47,992 for the year ended December 31, 1996, compared to $52,269 for the year ended December 31, 1995, a decrease of $4,277, or 8.18%. The decrease resulted from reduced rental revenues. General and Administrative Expenses General and administrative expenses totaled $177,537 for the year ended December 31, 1996 compared to $163,527 for the year ended December 31, 1995, an increase of $14,010 or 8.57%. The increase is primarily due to office payroll and supply expense. Interest Expense Interest expense totaled $115,250 for the year ended December 31, 1996, compared to $118,204 for the year ended December 31, 1995, a decrease of $2,954, or 2.50%. S-76 3296 Liquidity and Capital Resources As of June 30, 1998, your partnership had $241,285 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 partners of your partnership are not liable, responsible or accountable in damages or otherwise to any of the partners for any acts performed by it in good faith within the scope of the authority conferred on it by your partnership's agreement of limited 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 owned by AIMCO. See "Conflicts of Interest". Your partnership's agreement of limited partnership does not provide for the indemnification of the general partners or their affiliates. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $0.00 1995........................................................ 2.95 1996........................................................ 0.00 1997........................................................ 0.00 1998 (through June 30)...................................... 0.00
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, or (iii) have any contract, arrangement, S-77 3297 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 expense) in its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $ 5,712 1995........................................................ 5,712 1996........................................................ 5,712 1997........................................................ 8,650 1998 (through June 30)...................................... 7,325
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995............................................ $52,269 1996............................................ 47,992 1997............................................ 50,739 1998 (through June 30).......................... 26,057
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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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. S-78 3298 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 Salem Arms of Augusta Limited Partnership at December 31, 1997, 1996, and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-79 3299 INDEX TO FINANCIAL STATEMENTS FINANCIAL STATEMENTS OF SALEM ARMS OF AUGUSTA, L.P.
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (Unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (Unaudited)........................ F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (Unaudited)........................ F-4 Note to Financial Statements................................ F-5 Report of Independent Auditors.............................. F-6 Balance Sheet as of December 31, 1997....................... F-7 Statement of Profit and Loss for the year ended December 31, 1997...................................................... F-8 Statement of Changes in Deficit for the year ended December 31, 1997.................................................. F-12 Statement of Cash Flows for the year ended December 31, 1997...................................................... F-13 Notes to Financial Statements............................... F-15 Report of Independent Auditors.............................. F-17 Balance Sheet as of December 31, 1996....................... F-18 Statement of Profit and Loss for the year ended December 31, 1996...................................................... F-19 Statement of Changes in Deficit for the year ended December 31, 1996.................................................. F-23 Statement of Cash Flows for the year ended December 31, 1996...................................................... F-24 Notes to Financial Statements............................... F-26 Report of Independent Auditors.............................. F-28 Balance Sheet as of December 31, 1995....................... F-29 Statement of Profit and Loss for the year ended December 31, 1995...................................................... F-30 Statement of Changes in Deficit for the year ended December 31, 1995.................................................. F-34 Statement of Cash Flows for the year ended December 31, 1995...................................................... F-35 Notes to Financial Statements............................... F-37
F-1 3300 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP CONDENSED BALANCE SHEET JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 241,285 Receivables and Deposits.................................... 8,070 Restricted Escrows.......................................... -- Syndication Fees............................................ 67,342 Other Assets................................................ 61,631 Investment Property: Land...................................................... $ 110,968 Building and related personal property.................... 2,700,349 ----------- 2,811,317 Less: Accumulated depreciation............................ (2,059,629) 751,688 ----------- ----------- Total Assets...................................... $ 1,130,016 =========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ -- Other Accrued Liabilities................................... 46,707 Property taxes payable...................................... -- Tenant security deposits.................................... -- Notes Payable............................................... 1,278,219 Partners' Deficit........................................... (194,910) ----------- Total Liabilities and Partners' Deficit........... $ 1,130,016 ===========
F-2 3301 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $357,398 $358,147 Other Income.............................................. 19,082 17,553 (Gain) Loss on Disposal of Property....................... -- -- Casualty Gain/Loss........................................ -- -- -------- -------- Total Revenues.................................... 376,480 375,700 Expenses: Operating Expenses........................................ 119,596 112,578 General and Administrative Expenses....................... 80,955 84,550 Depreciation Expense...................................... 41,386 41,386 Interest Expense.......................................... 54,474 56,334 Property Tax Expense...................................... 18,935 17,144 -------- -------- Total Expenses.................................... 315,346 311,992 Income from Operations...................................... 61,134 63,708 Extraordinary Gain on Early Extinguishment of Debt.......... -- -- Loss on Sale of Investment Property......................... -- -- Casualty Gain............................................... -- -- -------- -------- Net Income........................................ $ 61,134 $ 63,708 ======== ========
F-3 3302 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Operating Activities: Net Income (loss)......................................... $ 61,134 $ 63,708 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 41,386 41,386 Loss on Casualty event................................. -- -- Extraordinary loss on refinancing...................... -- -- Changes in accounts: Receivables and deposits and other assets............ 73,003 3,624 Accounts Payable and accrued expenses................ 22,466 12,355 -------- -------- Net cash provided by (used in) operating activities....................................... 197,989 121,073 Investing Activities: Property improvements and replacements.................... (18,621) (53,596) Property improvements -- NON-CASH......................... -- -- Proceeds from sale of investments......................... -- -- Collections on notes receivable........................... -- -- Net (increase)/decrease in restricted escrows............. (3,495) 18,326 Net insurance proceeds received from casualty events...... -- -- Dividends received........................................ -- -- -------- -------- Net cash provided by (used in) investing activities....................................... (22,116) (35,270) Financing Activities: Payments on mortgage...................................... (22,905) (21,045) Repayment of mortgage..................................... -- -- Prepayment penalties...................................... -- -- Proceeds from refinancing of mortgage..................... -- -- Payment of Loan Costs..................................... -- -- Partners' Distributions................................... -- -- -------- -------- Net cash provided by (used in) financing activities....................................... (22,905) (21,045) -------- -------- Net increase (decrease) in cash and cash equivalents...................................... 152,968 64,758 Cash and cash equivalents at beginning of year.............. 88,317 162,290 -------- -------- Cash and cash equivalents at end of period.................. $241,285 $227,048 ======== ========
F-4 3303 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP NOTE TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Salem Arms as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 3304 REPORT OF INDEPENDENT AUDITORS The General Partners Salem Arms of Augusta Limited Partnership We have audited the accompanying balance sheet of Salem Arms of Augusta Limited Partnership (FHA Project No. 061-35036-PM) as of December 31, 1997 and the related statements of profit and loss, changes in deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Salem Arms of Augusta Limited Partnership at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 10, 1998 Greenville, South Carolina F-6 3305 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM BALANCE SHEET DECEMBER 31, 1997 ASSETS Current assets 1110 Petty cash.............................. $ 747 1120 Unrestricted cash.................................... 74,440 1130 Tenant accounts receivable, less allowance for doubtful accounts of $8,681............................ 9,551 ---------- Total current assets.............................. 84,738 Deposits held in trust-funded 1191 Tenant security deposits............................. 13,130 Prepaid expenses 1240 Property insurance.................... 6,091 1250 Mortgage insurance................................... 3,392 ---------- Total prepaid expenses............................ 9,483 Restricted deposits and funded reserves 1310 Mortgage escrow deposits............................. 29,337 1320 Reserve for replacements............................. 63,847 ---------- Total deposits.................................... 93,184 Fixed assets, at cost (Notes 1 and 2) 1410 Land............. $ 110,968 1420 Building............................................. 2,681,728 ---------- 2,792,696 Less accumulated depreciation..................... (2,018,243) 774,453 ---------- Other assets 1910 Partnership cash..................................... 94,484 ---------- $1,069,472 ========== LIABILITIES AND PARTNERS' DEFICIT Current liabilities 2110 Accounts payable..................................... $ 10,853 2130 Accrued interest -- mortgage......................... 9,915 2320 Mortgage payable, current portion (Note 2)........... 46,795 ---------- Total current liabilities......................... 67,563 Deposit and prepayment liabilities 2191 Tenant security deposits............................. 13,130 2210 Rent received in advance............................. 258 ---------- Total deposit and prepayment liabilities.......... 13,388 Long-term liabilities 2320 Mortgage payable (Note 2)............................ 1,291,209 Less current portion...................................... (46,795) ---------- Total long-term liabilities....................... 1,244,414 ---------- Total liabilities................................. 1,325,365 3130 Partners' (deficit).................................. (255,893) ---------- $1,069,472 ==========
See accompanying notes. F-7 3306 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS YEAR ENDED DECEMBER 31, 1997 PART I
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- -------- Rental Income 5100 Apartments or Member Carrying Charges (Coops)............. 5120 $815,792 Tenant Assistance Payments................................ 5121 Furniture and Equipment................................... 5130 Stores and Commercial..................................... 5140 Garage and Parking Spaces................................. 5170 Flexible Subsidy Income................................... 5180 Miscellaneous (specify)................................... 5190 -------- Total Rent Revenue Potential at 100% Occupancy.... 815,792 Vacancies 5200 Apartments................................................ 5220 (67,682) Furniture and Equipment................................... 5230 Stores and Commercial..................................... 5240 Garage and Parking Spaces................................. 5270 Miscellaneous (specify)................................... 5290 -------- Total Vacancies................................... (67,682) -------- Net Rental Revenue Rent Revenue Less Vacancies.... 748,110 -------- Elderly and Congregate Services Income 5300 Total Service Income (Schedule Attached).......... 5300 -- Financial Revenue 5400 Interest Income -- Project Operations..................... 5410 670 Income from Investments -- Residual Receipts.............. 5430 Income from Investments -- Reserve for Replacement........ 5440 Income from Investments -- Miscellaneous*................. 5490 3,664 -------- Total Financial Revenue........................... 4,334 -------- Other Revenue 5900 Laundry and Vending....................................... 5910 NSF and Late Charges...................................... 5920 16,088 Damages and Cleaning Fees................................. 5930 6,567 Forfeited Tenant Security Deposits........................ 5940 5,421 Other Revenue (specify)**................................. 5990 5,389 -------- Total Other Revenue............................... 33,465 -------- Total Revenue..................................... $785,909 --------
F-8 3307 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- -------- Advertising Expenses 6200/6300 Advertising............................................... 6210 $ 20,712 Other Administrative Expense.............................. 6250 13,994 Office Salaries........................................... 6310 15,056 Office Supplies........................................... 6311 9,632 Office or Model Apartment Rent............................ 6312 Management Fee............................................ 6320 50,739 Manager or Superintendent Salaries........................ 6330 22,998 Manager or Superintendent Rent Free Unit.................. 6331 13,983 Legal Expenses (Project).................................. 6340 201 Auditing Expenses (Project)............................... 6350 6,641 Bookkeeping Fees/Accounting Services...................... 6351 8,650 Telephone and Answering Service........................... 6360 6,091 Bad Debts................................................. 6370 25,171 Miscellaneous Administrative Expenses (specify)***........ 6390 7,153 -------- Total Administrative Expenses..................... 201,021 Utilities Expense 6400 Fuel Oil/Coal............................................. 6420 Electricity (Light and Misc. Power)....................... 6450 15,321 Water..................................................... 6451 9,392 Gas....................................................... 6452 Sewer..................................................... 6453 11,724 -------- Total Utilities Expense........................... 36,437 Operating and Maintenance Expenses 6500 Janitor and Cleaning Payroll.............................. 6510 Janitor and Cleaning Supplies............................. 6515 $ 1,290 Janitor and Cleaning Contract............................. 6517 1,115 Exterminating Payroll/Contract............................ 6519 2,427 Exterminating Supplies.................................... 6520 Garbage and Trash Removal................................. 6525 10,090 Security Payroll/Contract................................. 6530 6,265 Grounds Payroll........................................... 6535 2,190 Grounds Supplies.......................................... 6536 1,195 Grounds Contract.......................................... 6537 19,238 Repairs Payroll........................................... 6540 42,406 Repairs Material.......................................... 6541 15,526 Repairs Contract.......................................... 6542 9,271 Elevator Maintenance/Contract............................. 6545 Heating/Cooling Repairs and Maintenance................... 6546 3,049 Swimming Pool Maintenance/Contract........................ 6547 2,810 Snow Removal.............................................. 6548 Decorating Payroll/Contract............................... 6560 86,805 Decorating Supplies....................................... 6561 11,650 Other..................................................... 6570 Miscellaneous Operating & Maintenance Exp.*............... 6590 1,162 -------- Total Operating & Maintenance Expenses............ 216,489 --------
F-9 3308 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- -------- Taxes and Insurance 6700 Real Estate Taxes......................................... 6710 36,134 Payroll Taxes (FICA)...................................... 6711 8,419 Miscellaneous Taxes, Licenses and Permits................. 6719 109 Property and Liability Insurance (Hazard)................. 6720 18,807 Fidelity Bond Insurance................................... 6721 Workmen's Compensation.................................... 6722 6,176 Health Insurance & Other Employee Benefits................ 6723 7,088 Other Insurance (specify)................................. 6729 -------- Total Taxes and Insurance......................... 76,733 Financial Expenses 6800 Interest on Bonds Payable................................. 6810 Interest on Mortgage Payable.............................. 6820 111,758 Interest on Notes Payable (Long-Term)..................... 6830 Interest on Notes Payable (Short-Term).................... 6840 Mortgage Insurance Premium/Service Charge................. 6850 6,338 Miscellaneous Financial Expenses.......................... 6890 -------- Total Financial Expenses.......................... 118,096 Elderly & Congregate Service Expenses 6900 Total Service Expenses -- Schedule Attached....... 6900 Total Cost of Operations before Depreciation...... 648,776 Profit (Loss) before Depreciation................. 137,133 Depreciation (Total) -- 6600 (specify).................... 6600 (82,771) Operating Profit or (Loss)................................ 54,362 Corporate or Mortgagor Entity Expenses 7100 Officer Salaries.......................................... 7110 Legal Expenses (Entity)................................... 7120 Taxes (Federal -- State -- Entity)........................ 7130-32 Other Expenses (Entity)................................... 7190 -------- Total Corporate Expenses.......................... -------- Net Profit or (Loss).............................. $ 54,362 ========
- --------------- All amounts must be rounded to the nearest dollar; $.50 and over, round up -- $.49 and below, round down * Partnership cash interest...... $2,241 Savings interest............... 1,423 ------ $3,664 ====== ** Pet fees....................... $ 800 Lease cancellation fees........ 2,955 Application fees............... 1,150 Utility collections............ 484 ------ $5,389 ====== *** Ad valorem tax service......... $ 500 Furniture...................... 685 Computer expense............... 3,162 Training and travel............ 2,806 ------ $7,153 ======
F-10 3309 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) Miscellaneous or other Income and Expense Sub-account Groups. If miscellaneous or other income and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. PART II 1. Total Principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under the mortgage........................... $43,001 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived............................. $ 6,990 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss Statement.......... N/A 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement................................... N/A
- --------------- * Vehicle maintenance $1,162 See accompanying notes. F-11 3310 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM STATEMENT OF CHANGES IN DEFICIT YEAR ENDED DECEMBER 31, 1997 (Deficit) at December 31, 1996.............................. $(306,398) Net income.................................................. 54,362 Distributions............................................... (3,857) --------- (Deficit) at December 31, 1997.............................. $(255,893) =========
See accompanying notes. F-12 3311 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 Source of funds Operations: Revenue: Rental income.......................................... $ 705,457 Other: Legal and late fees.................................. $ 16,088 Cleaning and damage.................................. 6,567 Deposits forfeited................................... 10,810 Interest income...................................... 4,334 37,799 -------- --------- 743,256 Expenses: Administrative....................................... 64,424 Management fee....................................... 50,739 Bookkeeper fee....................................... 8,650 Operating expenses................................... 32,837 Payrolls............................................. 80,460 Maintenance fees..................................... 174,083 Taxes -- payroll..................................... 8,417 Taxes -- real estate................................. 36,459 Property insurance................................... 18,270 Workmen's compensation............................... 6,176 Health insurance..................................... 7,088 Interest on mortgage note............................ 111,758 Mortgage insurance premium........................... 6,428 Miscellaneous taxes and license...................... 111 605,900 -------- --------- Net cash provided by operating activities................... 137,356 Investing activities Change in partnership cash.................................. (48,367) Change in restricted deposits and funded reserves........... (13,696) Purchase of fixed assets.................................... (99,608) Change in petty cash........................................ (147) --------- Net cash (used) for investing activities.................... (161,818) Financing activities Reduction of long-term debt................................. (43,001) Distributions............................................... (3,857) --------- Net cash (used) for financing activities.................... (46,858) --------- (Decrease) in unrestricted cash............................. (71,320) Unrestricted cash at December 31, 1996...................... 145,760 --------- Unrestricted cash at December 31, 1997...................... $ 74,440 =========
F-13 3312 Operating activities Net income.................................................. $ 54,362 Adjustments to adjust net income to net cash provided by operating activities: Depreciation.............................................. 82,771 Changes in operating assets and liabilities: Prepaid expenses....................................... 447 Deposits held in trust................................. 2,800 Tenant accounts receivable............................. (3,169) Accounts payable....................................... 3,600 Rent received in advance............................... (330) Accrued property taxes................................. (325) Tenant security deposits............................... (2,800) --------- Net cash provided by operating activities................... $ 137,356 =========
See accompanying notes. F-14 3313 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership is organized as a limited partnership formed to acquire an interest in real property located in Augusta, Georgia and operates thereon an apartment complex of 136 units, under Section 221(d)(4) of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Depreciation is computed principally by an accelerated method over estimated useful lives of 3 to 40 years. Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents except for imprest balances of petty cash. Income Taxes Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. Management Agreement The Partnership pays management fees equal to 7 percent of gross collections to Insignia Residential Group. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. LONG-TERM DEBT A mortgage note is payable in monthly installments of $12,897 until July 2012, including interest at 8.5%, to Reilly Mortgage Group. The note is collateralized by pledge of land and buildings and, in addition, is insured by HUD. The note was confirmed in writing to our independent public accountants. Principal maturities for the next five years are as follows: 1998....................................................... $46,795 1999....................................................... 50,931 2000....................................................... 55,433 2001....................................................... 60,333 2002....................................................... 65,665
During the year, the Partnership incurred interest costs on the mortgage note of $111,758 and paid interest costs of $111,758. F-15 3314 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. RELATED PARTY TRANSACTIONS Transactions with affiliates of the general partners are summarized as follows:
RELATED PARTY TYPE OF TRANSACTION AMOUNT - ------------- ------------------- ------- Insignia Residential Group....................... Management fee $50,739 Insignia Residential Group....................... Bookkeeper fee 8,650
4. FIXED ASSETS AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION - ----------- ------------ -------- ----------- ------------- Salem Arms of Augusta........ $1,291,209 $110,968 $1,410,873 $1,270,855 ========== ======== ========== ==========
GROSS AMOUNT AT WHICH CARRIED
BUILDINGS AND RELATED DEPRECIABLE PERSONAL ACCUMULATED DATE LIFE -- DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED YEARS - ----------- -------- ----------- ---------- ------------ -------- ----------- Salem Arms........... $110,968 $2,681,728 $2,792,696 $2,018,243 9/74 3-40 ======== ========== ========== ==========
Reconciliation of "Fixed Assets and Accumulated Depreciation": FIXED ASSETS Balance at beginning of year................................ $2,693,088 Property improvements....................................... 99,608 ---------- Balance at end of year...................................... $2,792,696 ========== ACCUMULATED DEPRECIATION Balance at beginning of year................................ $1,935,472 Additions charged to expense................................ 82,771 ---------- Balance at end of year...................................... $2,018,243 ==========
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $2,745,565. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $2,302,182. NOTE 5 EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-16 3315 REPORT OF INDEPENDENT AUDITORS The General Partners Salem Arms of Augusta Limited Partnership We have audited the accompanying balance sheet of Salem Arms of Augusta Limited Partnership (FHA Project No. 061-35036-PM) as of December 31, 1996 and the related statements of profit and loss, changes in deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Salem Arms of Augusta Limited Partnership at December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 10, 1997 Greenville, South Carolina F-17 3316 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM BALANCE SHEET DECEMBER 31, 1996 ASSETS Current assets 1110 Petty cash........................................... $ 600 1120 Unrestricted cash.................................... 145,760 1130 Tenant accounts receivable........................... 6,382 ---------- Total current assets.............................. 152,742 Deposits held in trust -- funded 1191 Tenant security deposits............................. 15,930 Prepaid expenses 1240 Property insurance................................... 6,628 1250 Mortgage insurance................................... 3,302 ---------- Total prepaid expenses............................ 9,930 Restricted deposits and funded reserves 1310 Mortgage escrow deposits............................. 22,631 1320 Reserve for replacements............................. 56,857 ---------- Total deposits.................................... 79,488 Fixed assets, at cost (Notes 1 and 2) 1410 Land................................................. $ 110,968 1420 Building............................................. 2,582,120 ---------- 2,693,088 Less accumulated depreciation..................... (1,935,472) 757,616 ---------- Other assets 1910 Partnership cash..................................... 46,117 ---------- $1,061,823 ========== LIABILITIES AND PARTNERS' DEFICIT Current liabilities 2110 Accounts payable..................................... $ 7,578 2130 Accrued interest -- mortgage......................... 9,915 2320 Mortgage payable, current portion (Note 2)........... 42,994 ---------- Total current liabilities......................... 60,487 Deposit and prepayment liabilities 2191 Tenant security deposits............................. 15,930 2210 Rent received in advance............................. 588 ---------- Total deposit and prepayment liabilities.......... 16,518 Long-term liabilities 2320 Mortgage payable (Note 2)............................ 1,334,210 Less current portion...................................... (42,994) ---------- Total long-term liabilities....................... 1,291,216 ---------- Total liabilities................................. 1,368,221 3130 Partners' (deficit).................................. (306,398) ---------- $1,061,823 ==========
See accompanying notes. F-18 3317 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS YEAR ENDED DECEMBER 31, 1996 PART I
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT - ---------------------- --------- -------- Rental Income 5100 Apartments or Member Carrying Charges (Coops)............. 5120 $791,835 Tenant Assistance Payments................................ 5121 Furniture and Equipment................................... 5130 Stores and Commercial..................................... 5140 Garage and Parking Spaces................................. 5170 Flexible Subsidy Income................................... 5180 Miscellaneous (specify)................................... 5190 -------- Total Rent Revenue Potential at 100% Occupancy.... 791,835 Vacancies 5200 Apartments................................................ 5220 (94,418) Furniture and Equipment................................... 5230 Stores and Commercial..................................... 5240 Garage and Parking Spaces................................. 5270 Miscellaneous (specify)................................... 5290 -------- Total Vacancies................................... (94,418) -------- Net Rental Revenue Rent Revenue Less Vacancies.... 697,417 Elderly and Congregate Services Income 5300 -------- Total Service Income (Schedule Attached).......... 5300 -- Financial Revenue 5400 Interest Income -- Project Operations..................... 5410 411 Financial Income from Investments -- Residual Receipts.... 5430 Income from Investments -- Reserve for Replacement........ 5440 Income from Investments -- Miscellaneous*................. 5490 3,344 -------- Total Financial Revenue........................... 3,755 Other Revenue 5900 Laundry and Vending....................................... 5910 NSF and Late Charges...................................... 5920 7,813 Damages and Cleaning Fees................................. 5930 4,926 Forfeited Tenant Security Deposits........................ 5940 6,250 Other Revenue (specify)**................................. 5990 8,912 -------- Total Other Revenue............................... 27,901 -------- Total Revenue..................................... $729,073 ========
F-19 3318 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT - ---------------------- --------- -------- Administrative Expenses 6200/6300 Advertising............................................... 6210 $ 21,739 Other Administrative Expense.............................. 6250 7,699 Office Salaries........................................... 6310 15,254 Office Supplies........................................... 6311 8,685 Office or Model Apartment Rent............................ 6312 Management Fee............................................ 6320 47,992 Manager or Superintendent Salaries........................ 6330 23,985 Manager or Superintendent Rent Free Unit.................. 6331 14,968 Legal Expenses (Project).................................. 6340 1,294 Auditing Expenses (Project)............................... 6350 6,325 Bookkeeping Fees/Accounting Services...................... 6351 5,712 Telephone and Answering Service........................... 6360 4,323 Bad Debts................................................. 6370 13,685 Miscellaneous Administrative Expenses (specify)***........ 6390.... 5,876 -------- Total Administrative Expenses..................... 177,537 Utilities Expense 6400 Fuel Oil/Coal............................................. 6420 Electricity (Light and Misc. Power)....................... 6450 14,856 Water..................................................... 6451 9,256 Gas....................................................... 6452 Sewer..................................................... 6453 8,036 -------- Total Utilities Expense........................... 32,148
F-20 3319 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT - ---------------------- --------- -------- Operating and Maintenance Expenses 6500 Janitor and Cleaning Payroll.............................. 6510 Janitor and Cleaning Supplies............................. 6515 $ 1,253 Janitor and Cleaning Contract............................. 6517 Exterminating Payroll/Contract............................ 6519 2,264 Exterminating Supplies.................................... 6520 Garbage and Trash Removal................................. 6525 8,942 Security Payroll/Contract................................. 6530 342 Grounds Payroll........................................... 6535 Grounds Supplies.......................................... 6536 1,553 Grounds Contract.......................................... 6537 15,475 Repairs Payroll........................................... 6540 50,782 Repairs Material.......................................... 6541 14,641 Repairs Contract.......................................... 6542 13,795 Elevator Maintenance/Contract............................. 6545 Heating/Cooling Repairs and Maintenance................... 6546 3,400 Swimming Pool Maintenance/Contract........................ 6547 5,637 Snow Removal.............................................. 6548 Decorating Payroll/Contract............................... 6560 32,318 Decorating Supplies....................................... 6561 13,828 Other..................................................... 6570 Miscellaneous Operating & Maintenance Exp.****............ 6590 1,193 -------- Total Operating & Maintenance Expenses............ 165,423 Taxes and Insurance 6700 Real Estate Taxes......................................... 6710 33,017 Payroll Taxes (FICA)...................................... 6711 7,909 Miscellaneous Taxes, Licenses and Permits................. 6719 487 Property and Liability Insurance (Hazard)................. 6720 18,242 Fidelity Bond Insurance................................... 6721 204 Workmen's Compensation.................................... 6722 9441 Health Insurance & Other Employee Benefits................ 6723 6,752 Other Insurance (specify)................................. 6729 -------- Total Taxes and Insurance......................... 76,052 Financial Expenses 6800 Interest on Bonds Payable................................. 6810 Interest on Mortgage Payable.............................. 6820 115,250 Interest on Notes Payable (Long-Term)..................... 6830 Interest on Notes Payable (Short-Term).................... 6840 Mortgage Insurance Premium/Service Charge................. 6850 7,381 Miscellaneous Financial Expenses.......................... 6890 -------- Total Financial Expenses.......................... 122,631
F-21 3320 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO. 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT - ---------------------- --------- -------- Elderly & Congregate Service Expenses 6900 Total Service Expenses - Schedule Attached........ 6900 -------- Total Cost of Operations before Depreciation...... 573,791 -------- Profit (Loss) before Depreciation................. 155,282 Depreciation (Total) -- 6600 (specify).................... (73,048) -------- Operating Profit or (Loss)........................ 6600 82,234 Corporate or Mortgagor Entity Expenses 7100 Officer Salaries.......................................... 7110 Legal Expenses (Entity)................................... 7120 Taxes (Federal-State-Entity).............................. 7130-32 Other Expenses (Entity)................................... 7190 -------- Total Corporate Expenses -------- Net Profit or (Loss).............................. $ 82,234 ========
- --------------- All amounts must be rounded to the nearest dollar; .50 and over, round up -- .49 and below, round down * Partnership cash interest....... 1,936 Savings Interest................ 1,408 ----- 3,344 ===== ** Lease cancellation fees......... 6,389 Application fees................ 2,380 Utility collections............. 143 ----- 8,912 ===== *** Ad valorem tax service.......... 500 Computer Expense................ 2,042 Training and travel............. 3,334 ----- 5,876 ===== **** Vehicle maintenance............. 937 Fire protection................. 256 ----- 1,193 =====
Miscellaneous or other Income and Expense Sub-account Groups. If miscellaneous or other income and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. PART II 1. Total Principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under the mortgage........................... $39,575 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived............................. $ 6,990 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss Statement.......... N/A 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement................................... N/A
- --------------- * Vehicle maintenance.................. $ 937 Fire protection...................... 256 ------ $1,193 ======
See accompanying notes. F-22 3321 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM STATEMENT OF CHANGES IN DEFICIT YEAR ENDED DECEMBER 31, 1996 (Deficit) at December 31, 1995.............................. $(384,479) Net income.................................................. 82,234 Distributions............................................... (4,153) --------- (Deficit) at December 31, 1996.............................. $(306,398) =========
See accompanying notes. F-23 3322 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 Source of funds Operations: Revenue: Rental income.......................................... $666,465 Other: Legal and late fees.................................. $ 7,813 Cleaning and damage.................................. 4,926 Deposits forfeited................................... 6,250 Interest income...................................... 3,755 Other revenue........................................ 8,912 31,656 -------- -------- 698,121 Expenses: Administrative......................................... 55,941 Management fee......................................... 47,992 Bookkeeper fee......................................... 5,712 Operating expenses..................................... 33,800 Payrolls............................................... 90,021 Maintenance fees....................................... 114,641 Taxes -- payroll....................................... 7,909 Taxes -- real estate................................... 32,692 Property insurance..................................... 19,011 Fidelity bond.......................................... 204 Workmen's compensation................................. 9,441 Health insurance....................................... 6,752 Interest on mortgage note.............................. 115,066 Mortgage insurance premium............................. 6,645 Miscellaneous taxes and license........................ 487 546,314 -------- -------- Net cash provided by operating activities................... 151,807 Investing activities Change in partnership cash.................................. 2,732 Change in restricted deposits and funded reserves........... (3,079) Purchase of fixed assets.................................... (59,292) -------- Net cash (used) for investing activities.................... (59,639) Financing activities Reduction of long-term debt................................. $(39,575) Distributions............................................... (4,153) -------- Net cash (used) for financing activities.................... (43,728) Increase in unrestricted cash............................... 48,440 Unrestricted cash at December 31, 1995...................... 97,320 -------- Unrestricted cash at December 31, 1996...................... $145,760 ========
F-24 3323 Operating activities Net income.................................................. $ 82,234 Adjustments to adjust net income to net cash provided by operating activities: Depreciation.............................................. 73,048 Changes in operating assets and liabilities: Prepaid expenses....................................... (33) Deposits held in trust................................. (8,430) Tenant accounts receivable............................. (840) Accounts payable....................................... (1,327) Rent received in advance............................... (1,459) Accrued interest -- mortgage........................... 184 Tenant security deposits............................... 8,430 -------- Net cash provided by operating activities................... $151,807 ========
See accompanying notes. F-25 3324 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership is organized as a limited partnership formed to acquire an interest in real property located in Augusta, Georgia and operates thereon an apartment complex of 136 units, under Section 221(d)4 of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Depreciation is computed principally by an accelerated method over estimated useful lives of 3 to 40 years. Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents except for imprest balances of petty cash. Income Taxes Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. Management Agreement The Partnership pays management fees equal to 7 percent of gross collections to Insignia Management Group. Financial Accounting Standards Statement No. 107 Disclosures The carrying amounts reported in the balance sheet, for those financial instruments described in the schedule of funds in financial institutions included in the supporting data required by HUD listed on the contents page, approximate those assets' fair value. Payment of long-term liabilities are generally dependent upon the Partnership's ability to achieve cash flow, the partners providing additional funds, the sale of the project or refinancing of the mortgage at the end of the Regulatory Agreement. Management believes that estimating the fair value of these long-term liabilities is either not appropriate or, because of excess costs, considers estimation of fair value to otherwise be impracticable. Long-Lived Assets During 1996, the Partnership adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of FASB No. 121 did not have a material effect on the Partnership's financial statements. F-26 3325 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. LONG-TERM DEBT A mortgage note is payable in monthly installments of $12,897 until July 2012, including interest at 8.5%, to Reilly Mortgage Group. The note is collateralized by pledge of land and buildings and, in addition, is insured by HUD. The note was confirmed in writing to our independent public accountants. Principal maturities for the next five years are as follows: 1997....................................................... $42,994 1998....................................................... 46,795 1999....................................................... 50,931 2000....................................................... 55,433 2001....................................................... 60,333
During the year, the Partnership incurred interest costs on the mortgage note of $115,250 and paid interest costs of $115,066. 3. RELATED PARTY TRANSACTIONS Transactions with affiliates of the general partners are summarized as follows:
RELATED PARTY TYPE OF TRANSACTION AMOUNT ------------- ------------------- ------- Insignia Management Group........................ Management fee $47,992 Insignia Management Group........................ Bookkeeper fee 5,712
NOTE 4 EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-27 3326 REPORT OF INDEPENDENT AUDITORS The General Partners Salem Arms of Augusta Limited Partnership We have audited the accompanying balance sheet of Salem Arms of Augusta Limited Partnership (FHA Project No. 061-35036-PM) as of December 31, 1995 and the related statements of profit and loss, changes in deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Salem Arms of Augusta Limited Partnership at December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 9, 1996 Greenville, South Carolina F-28 3327 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM BALANCE SHEET DECEMBER 31, 1995 ASSETS Current assets 1110 Petty cash........................................... $ 600 1120 Unrestricted cash.................................... 97,320 1130 Tenant accounts receivable........................... 5,542 ---------- Total current assets........................................ 103,462 Deposits held in trust-funded 1191 Tenant security deposits............................. 7,500 Prepaid expenses 1240 Property insurance................................... 5,859 1250 Mortgage insurance................................... 4,038 ---------- Total prepaid expenses...................................... 9,897 Restricted deposits and funded reserves 1310 Mortgage escrow deposits............................. 26,542 1320 Reserve for replacements............................. 49,867 ---------- Total deposits.............................................. 76,409 Fixed assets, at cost (Notes 1 and 2) 1410 Land................................................. $ 110,968 1420 Buildings............................................ 2,522,828 ----------- 2,633,796 Less accumulated depreciation............................. (1,862,424) 771,372 ----------- Other assets 1910 Partnership cash..................................... 48,849 ---------- $1,017,489 ========== LIABILITIES AND PARTNERS' DEFICIT Current liabilities 2110 Accounts payable..................................... $ 8,905 2130 Accrued interest -- mortgage......................... 9,731 2320 Mortgage payable, current portion (Note 2)........... 39,503 ---------- Total current liabilities................................... 58,139 Deposit and prepayment liabilities 2191 Tenant security deposits............................. 7,500 2210 Rent received in advance............................. 2,047 ---------- Total deposit and prepayment liabilities.................... 9,547 Long-term liabilities 2320 Mortgage payable (Note 2)............................ 1,373,785 Less current portion................................. (39,503) ---------- Total long-term debt........................................ 1,334,282 ---------- Total liabilities........................................... 1,401,968 3130 Partners' (deficit).................................. (384,479) ---------- $1,017,489 ==========
See accompanying notes. F-29 3328 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO: 061-35036-PM STATEMENT OF PROFIT AND LOSS YEAR ENDED DECEMBER 31, 1995 PART I
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- -------- Rental Income 5100 Apartments or Member Carrying Charges (Coops)............. 5120 $778,800 Tenant Assistance Payments................................ 5121 Furniture and Equipment................................... 5130 Stores and Commercial..................................... 5140 Garage and Parking Spaces................................. 5170 Flexible Subsidy Income................................... 5180 Miscellaneous (specify)................................... 5190 -------- Total Rent Revenue Potential at 100% Occupancy.... 778,800 Vacancies 5200 Apartments................................................ 5220 (35,707) Furniture and Equipment................................... 5230 Stores and Commercial..................................... 5240 Garage and Parking Spaces................................. 5270 Miscellaneous............................................. 5290 -------- Total Vacancies................................... (35,707) -------- Net Rental Revenue Rent Revenue Less Vacancies.... 743,093 Elderly and Congregate Services Income 5300 Total Service Income (Schedule Attached).......... 5300 Financial Revenue 5400 Interest Income -- Project Operations..................... 5410 Income from Investments -- Residual Receipts.............. 5430 Income from Investments -- Reserve for Replacement........ 5440 Income from Investments -- Miscellaneous.................. 5490 2,857 -------- Total Financial Revenue........................... 2,857 Other Revenue 5900 Laundry and Vending....................................... 5910 NSF and Late Charges...................................... 5920 13,438 Damages and Cleaning Fees................................. 5930 5,835 Forfeited Tenant Security Deposits........................ 5940 499 Other Revenue (specify) Gain on sale of land (Note 4)..... 5990 6,082 -------- Total Other Revenue............................... 25,854 Total Revenue..................................... 771,804
F-30 3329 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO: 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- -------- Administrative Expenses 6200/6300 Advertising............................................... 6210 $ 13,038 Other Administrative Expense.............................. 6250 7,669 Office Salaries........................................... 6310 15,353 Office Supplies........................................... 6311 6,820 Office or Model Apartment Rent............................ 6312 Management................................................ 6320 52,269 Manager or Superintendent Salaries........................ 6330 21,802 Manager or Superintendent Rent Free Unit.................. 6331 12,491 Legal Expenses (Project).................................. 6340 225 Auditing Expenses (Project)............................... 6350 6,240 Bookkeeping Fees/Accounting Services...................... 6351 5,712 Telephone and Answering Service........................... 6360 4,628 Bad Debts................................................. 6370 10,670 Miscellaneous Administrative Expense (specify)*........... 6390 6,610 -------- Total Administrative Expenses..................... 163,527 Utilities Expense 6400 Fuel Oil/Coal............................................. 6420 Electricity (Light and Misc. Power)....................... 6450 13,056 Water..................................................... 6451.... 12,778 Gas....................................................... 6452 Sewer..................................................... 6453 10,389 -------- Total Utilities Expense........................... $ 36,223
F-31 3330 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO: 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- -------- Operating and Maintenance Expenses 6500 Janitor and Cleaning Payroll.............................. 6510 Janitor and Cleaning Supplies............................. 6515 $ 2,898 Janitor and Cleaning Contract............................. 6517 267 Exterminating Payroll/Contract............................ 6519 Exterminating Supplies.................................... 6520 2,707 Garbage and Trash Removal................................. 6525 11,252 Security Payroll/Contract................................. 6530 Grounds Payroll........................................... 6535 233 Grounds Supplies.......................................... 6536 4,616 Grounds Contract.......................................... 6537 11,463 Repairs Payroll........................................... 6540 49,008 Repairs Material.......................................... 6541 19,371 Repairs Contract.......................................... 6542 14,090 Elevator Maintenance/Contract............................. 6545 Heating/Cooling Repairs and Maintenance................... 6546 2,119 Swimming Pool Maintenance/Contract........................ 6547 2,691 Snow Removal.............................................. 6548 Decorating Payroll/Contract............................... 6560 30,673 Decorating Supplies....................................... 6561 15,677 Other..................................................... 6570 Miscellaneous Operating & Maintenance Exp.*............... 6590 2,836 -------- Total Operating & Maintenance Expenses............ 169,901 Taxes and Insurance 6700 Real Estate Taxes......................................... 6710 32,767 Payroll Taxes (FICA)...................................... 6711 8,876 Miscellaneous Taxes, Licenses and Permits................. 6719 323 Property and Liability Insurance (Hazard)................. 6720 17,184 Fidelity Bond Insurance................................... 6721 111 Workmen's Compensation.................................... 6722 10,282 Health Insurance & Other Employee Benefits................ 6723 5,767 Other Insurance (specify)................................. 6729 -------- Total Taxes and Insurance......................... 75,310 Financial Expenses 6800 Interest on Bonds Payable................................. 6810 Interest on Mortgage Payable.............................. 6820 118,204 Interest on Notes Payable (Long-Term)..................... 6830 Interest on Notes Payable (Short-Term).................... 6840 Mortgage Insurance Premium/Service Charge................. 6850 6,906 Miscellaneous............................................. 6890 -------- Total Financial Expenses.......................... 125,110
F-32 3331 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP PROJECT NO: 061-35036-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- -------- Elderly & Congregate Services Expenses 6900 Total Service Expenses -- Schedule Attached............... 6900 Total Cost of Operations before Depreciation.............. $570,071 Profit (Loss) before Depreciation......................... 201,733 Depreciation (Total) -- 6600 (specify).................... 6600 (65,299) Operating Profit or (Loss)................................ 136,434 Corporate or Mortgagor Entity Expenses 7100 Officer Salaries.......................................... 7110 Legal Expenses (Entity)................................... 7120 Taxes (Federal-State-Entity).............................. 7130-32 Other Expenses (Entity)................................... 7190 2,011 -------- Total Corporate Expenses.......................... 2,011 Net Profit or (Loss).............................. $134,423 ========
- --------------- All amounts must be rounded to the nearest dollar: $.50 and over, round up -- $.49 and below, round down * Ad valorem tax service................. $ 559 Training and travel.................... 2,515 Miscellaneous.......................... 3,536 ------ $6,610 ======
Miscellaneous or other Income and Expense Sub-account Groups. If miscellaneous or other income and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. PART II 1. Total Principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under the mortgage. ......................... $36,295 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived. ........................... 6,990 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss Statement. ........ 0 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. ................................. N/A
- --------------- * Vehicle maintenance.................... $1,962 Fire protection........................ 874 ------ $2,836 ======
See accompanying notes. F-33 3332 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM STATEMENT OF CHANGES IN DEFICIT YEAR ENDED DECEMBER 31, 1995 (Deficit) at December 31, 1994.............................. $(489,040) Net income.................................................. 134,423 Distributions............................................... (29,862) --------- (Deficit) at December 31, 1995.............................. $(384,479) =========
See accompanying notes. F-34 3333 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1995 Source of funds Operations: Revenue: Rental income.......................................... $715,637 Other: Legal and late fees.................................. $ 13,438 Cleaning and damage charges.......................... 5,835 Interest income...................................... 2,857 Deposits forfeited................................... 499 22,629 -------- -------- 738,266 Expenses: Administrative expenses................................ 45,231 Management fee......................................... 52,269 Bookkeeper fee......................................... 5,712 Operating expenses..................................... 79,498 Payrolls............................................... 86,396 Maintenance expenses................................... 120,660 Taxes -- payroll....................................... 8,876 Taxes -- real estate................................... 32,767 Taxes, miscellaneous................................... 323 Property insurance..................................... 17,232 Health insurance....................................... 5,767 Fidelity bond.......................................... 111 Workmen's compensation................................. 10,282 Interest on mortgage note.............................. 118,461 Mortgage insurance premium............................. 6,844 Entity expenses........................................ 2,010 592,439 -------- -------- Net cash provided by operating activities................... 145,827 Investing activities Change in partnership cash.................................. (18,137) Change in restricted deposits and funded reserves........... (16,991) Purchase of fixed assets.................................... (67,715) Proceeds from sale of property.............................. 9,114 -------- Net cash (used) for investing activities.................... (93,729) Financing activities Distributions............................................... $(29,862) Reduction of long-term debt................................. (36,295) Deposits held in trust...................................... 550 Tenant security deposits.................................... (578) -------- Net cash (used) for financing activities.................... (66,185) -------- (Decrease) in unrestricted cash............................. (14,087) Unrestricted cash at December 31, 1994...................... 111,407 -------- Unrestricted cash at December 31, 1995...................... $ 97,320 ========
F-35 3334 Operating activities Net income.................................................. $134,423 Adjustments to adjust net income to net cash provided by operating activities: Depreciation.............................................. 65,299 Gain on sale of property.................................. (6,082) Changes in operating assets and liabilities: Prepaid expenses....................................... 14 Tenant accounts receivable............................. (5,542) Accounts payable....................................... (43,276) Rent received in advance............................... 1,248 Accrued interest -- mortgage........................... (257) -------- Net cash provided by operating activities................... $145,827 ========
See accompanying notes. F-36 3335 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 1. SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership is organized as a limited partnership formed to acquire an interest in real property located in Augusta, Georgia and operates thereon an apartment complex of 136 units, under Section 221(d)4 of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Depreciation is computed principally by an accelerated method over estimated useful lives of 3 to 40 years. Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents except for imprest balances of petty cash. Income Taxes Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. Management Agreement The Partnership pays management fees equal to 7 percent of gross collections to a wholly-owned subsidiary of Insignia Financial Group, Inc. Financial Accounting Standards Statement No. 107 Disclosures The carrying amounts reported in the balance sheet, for those financial instruments described in the schedule of funds in financial institutions included in the supporting data required by HUD listed on the contents page, approximate those assets' fair value. Payment of long-term liabilities are generally dependent upon the Partnership's ability to achieve cash flow, the partners providing additional funds, the sale of the project or refinancing of the mortgage at the end of the Regulatory Agreement. Management believes that estimating the fair value of these long-term liabilities is either not appropriate or, because of excess costs, considers estimation of fair value to otherwise be impracticable. 2. LONG-TERM DEBT A mortgage note is payable in monthly installments of $12,897 until July 2012, including interest at 8.5%, to Reilly Mortgage Group. The note is collateralized by pledge of land and buildings and, in addition, is F-37 3336 SALEM ARMS OF AUGUSTA LIMITED PARTNERSHIP FHA PROJECT NO. 061-35036-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) insured by HUD. The note was confirmed in writing to our independent public accountants. Principal maturities for the next five years are as follows: 1996........................................................ $39,503 1997........................................................ 42,994 1998........................................................ 46,795 1999........................................................ 50,931 2000........................................................ 55,433
During the year, the Partnership incurred interest costs on the mortgage note of $118,204 and paid interest costs of $118,461. 3. RELATED PARTY TRANSACTIONS Transactions with affiliates of the general partners are summarized as follows:
RELATED PARTY TYPE OF TRANSACTION AMOUNT ------------- ------------------- ------- Insignia Management Group........................ Management fee $52,269 Insignia Management Group........................ Bookkeeper fee 5,712
4. GAIN ON SALE OF LAND During the year, a portion of the Partnership's land was seized by Richmond County under an order of condemnation. The Partnership received $9,114 for the land which had a cost basis of $3,032. This resulted in a gain on sale of land of $6,082. 5. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-38 3337 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 3338 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 3339 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 September , 1998 A-3 3340 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF SHAKER SQUARE, 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED FOR WE EXTEND THE DEADLINE. ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-27 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 3341 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1 SUMMARY........................................ S-8 The AIMCO Operating Partnership.............. S-8 The Offer.................................... S-8 Risk Factors................................. S-8 Background and Reasons for the Offer......... S-13 Terms of the Offer........................... S-15 Certain Federal Income Tax Matters........... S-16 Valuation of Units........................... S-17 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-19 Your Partnership............................. S-19 Source and Amount of Funds and Transactional Expenses................................... S-20 Summary Financial Information of AIMCO Properties, L.P............................ S-21 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-23 Summary Financial Information of Shaker Square, L.P................................ S-26 Comparative Per Unit Data.................... S-26 THE AIMCO OPERATING PARTNERSHIP................ S-27 RISK FACTORS................................... S-27 Risks to Unitholders Who Tender Their Units in the Offer............................... S-27 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-29 BACKGROUND AND REASONS FOR THE OFFER........... S-30 Background of the Offer...................... S-30 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-36 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-41 Fees and Expenses............................ S-42 Accounting Treatment......................... S-42
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-43 General...................................... S-43 Ranking...................................... S-43 Distributions................................ S-43 Allocation................................... S-44 Liquidation Preference....................... S-44 Redemption................................... S-45 Voting Rights................................ S-45 Restrictions on Transfer..................... S-45 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-48 CERTAIN FEDERAL INCOME TAX MATTERS............. S-51 Tax Consequences of Exchanging Units Solely for OP Units............................... S-51 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-51 Tax Consequences of Exchanging Units Solely for Cash................................... S-52 Adjusted Tax Basis........................... S-52 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-53 Passive Activity Losses...................... S-53 Foreign Offerees............................. S-54 VALUATION OF UNITS............................. S-54 FAIRNESS OF THE OFFER.......................... S-55 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-55 Fairness to Unitholders who Tender their Units...................................... S-56 Fairness to Unitholders who do not Tender their Units................................ S-57 Comparison of Consideration to Alternative Consideration.............................. S-57 Allocation of Consideration.................. S-58 STANGER ANALYSIS............................... S-58 Experience of Stanger........................ S-59 Summary of Materials Considered.............. S-59 Summary of Reviews........................... S-60 Conclusions.................................. S-60 Assumptions, Limitations and Qualifications............................. S-60 Compensation and Material Relationships...... S-61 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71 YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72
i 3342
PAGE ---- Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-73 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions and Transfers of Units......... S-77
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-78 Management Compensation...................... S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 3343 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 Shaker Square, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 3344 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 3345 - 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). 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 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 3346 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 3347 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 100% of 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? 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: 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 3348 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 3349 (This page intentionally left blank) S-7 3350 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. 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 date 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. 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 5 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. 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 S-8 3351 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-9 3352 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 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 S-10 3353 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-11 3354 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, 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. 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 S-12 3355 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 1.25% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-13 3356 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. 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." S-14 3357 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 S-15 3358 - 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 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 CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. S-16 3359 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 own 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 S-17 3360 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, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 is not subject to such limitations. 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-18 3361 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $19,000 annually and may receive reimbursements for expenses generated in that capacity from your partnership. The property manager received management fees of $61,478 in 1996, $64,410 in 1997 and $32,059 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 Your Partnership and its Property. Shaker Square, L.P. is a Delaware limited partnership which was formed on October 16, 1985 for the purpose of owning and operating a single apartment property located in Whitehall, Ohio, known as "Shaker Square Apartments." In 1985, it completed a private placement of units that raised net proceeds of approximately $2,656,000. Your partnership has no employees. Property Management. Since December 1991, your partnership's property has been managed by an entity which is our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on July 1, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time S-19 3362 period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,375,603, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $119,949, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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-20 3363 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 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) e 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-21 3364
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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-22 3365 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-23 3366
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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-24 3367 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-25 3368 SUMMARY FINANCIAL INFORMATION OF SHAKER SQUARE, L.P. The summary financial information of Shaker Square, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Shaker Square, L.P. for the years ended December 31, 1997, 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 of Your Partnership" included herein. See "Index to Financial Statements." SHAKER SQUARE, L.P.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues......... 642,662 635,870 1,301,695 1,221,122 1,151,523 1,195,937 1,120,177 Net Income/(Loss)............ 84,953 65,956 55,870 (64,893) (72,945) 38,304 (28,118) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation... 1,996,906 2,100,505 2,101,101 2,186,570 2,306,920 2,396,215 2,516,000 Total Assets........... 2,884,658 2,909,580 2,929,364 2,921,662 3,190,837 3,401,438 3,513,992 Mortgage Notes Payable, including Accrued Interest................... 3,343,862 3,439,597 3,398,042 3,473,228 3,542,130 3,605,272 3,663,137 Partners' Capital/(Deficit).......... (499,160) (574,026) (584,112) (639,982) (458,477) (285,511) (221,774)
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 YOUR 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 $-- $--
S-26 3369 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. 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 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 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. S-27 3370 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 Code. 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 therefore 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 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. 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 S-28 3371 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 $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 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. 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. S-29 3372 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently own a 1.25% limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-30 3373 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the unit, of your partnership. In the absence of such consent, your only 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 would 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 apartment properties may 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. S-31 3374 - 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 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 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 3375 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-33 3376 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 3377 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. 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. S-35 3378 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." 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. 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. S-36 3379 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, (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 9:00 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 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, Denver, Colorado time. S-37 3380 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-38 3381 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. 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 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 S-39 3382 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 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 S-40 3383 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-41 3384 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. 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. 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-42 3385 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-43 3386 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 payment. 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 OP Units and any such S-44 3387 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-45 3388 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-46 3389 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-47 3390 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-48 3391 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-49 3392 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-50 3393 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-51 3394 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-52 3395 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-53 3396 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-54 3397 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-55 3398 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 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, a third party expert, that the cash 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 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 $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." 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-56 3399 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. S-57 3400 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. 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-58 3401 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-59 3402 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 September 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 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 property was 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, S-60 3403 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-61 3404 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Shaker Square Apartments. 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 July 1, 2015. Agreement") or as provided by law. See "Description of 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, finance The purpose of the AIMCO Operating Partnership is to and operate your partnership's property. Subject to conduct any business that may be lawfully conducted by restrictions contained in your partnership's agreement a limited partnership organized pursuant to the of limited partnership, your partnership may perform Delaware Revised Uniform Limited Partnership Act (as all acts necessary or appropriate in connection amended from time to time, or any successor to such therewith and reasonably related thereto, including statute) (the "Delaware Limited Partnership Act"), acquiring additional real or personal property, provided that such business is to be conducted in a 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-62 3405 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership are 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 40 units for cash and time to the limited partners and to other persons, and notes 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. 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 acquire property or funds or other assets to its subsidiaries or other services from, and have other transactions with persons persons in which it has an equity investment, and such who are partners or who are affiliates of partners. Any persons may borrow funds from the AIMCO Operating and all compensation paid to such persons in connection Partnership, on terms and conditions established in the with services performed for your partnership must be sole and absolute discretion of the general partner. To commensurate with that which would be paid to an the extent consistent with the business purpose of the independent person for similar services and all AIMCO Operating Partnership and the permitted agreements must be in writing. Your partnership may not activities of the general partner, the AIMCO Operating make loans to any partners but the general partner may Partnership may transfer assets to joint ventures, make loans to your partnership; provided that the limited liability companies, partnerships, interest and fees received by the general partner in corporations, business trusts or other business connection with such loans are not in excess of the entities in which it is or thereby becomes a amounts which would be charged by an unrelated bank and participant upon such terms and subject to such the general partner does not receive a finder's or conditions consistent with the AIMCO Operating Part- placement fee or commission. 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 your partnership business, whether full power and authority to borrow money on behalf of secured or unsecured. the AIMCO Operating Partnership. The AIMCO Operating 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.
S-63 3406 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 the limited partners to receive, for any with a statement of the purpose of such demand and at proper purpose, the name and address of each Limited such OP Unitholder's own expense, to obtain a current Partner and the number of units owned by each limited list of the name and last known business, residence or partner. Your partnership furnishes such information to mailing address of the general partner and each other any limited partner requesting the same in writing, OP Unitholder. upon payment of all costs and expenses of your partnership in connection with the preparation and forwarding of such information.
Management Control The general partner of your partnership manages and All management powers over the business and affairs of controls your partnership and all aspects of its the AIMCO Operating Partnership are vested in AIMCO-GP, business. The general partner has full, exclusive and Inc., which is the general partner. No OP Unitholder complete authority and discretion in the management and has any right to participate in or exercise control or control of the business and the activities and management power over the business and affairs of the operations of your partnership. In the exercise of its AIMCO Operating Partnership. The OP Unitholders have authority, it makes all decisions affecting the conduct the right to vote on certain matters described under of the business of your partnership. The general "Comparison of Ownership of Your Units and AIMCO OP partner possesses and may enjoy and exercise all of the Units -- Voting Rights" below. The general partner may rights and powers of general partner as provided by not be removed by the OP Unitholders with or without applicable laws, except to the extent any such rights cause. may be limited or restricted by express provisions of your agreement. Limited partners may not take part in In addition to the powers granted a general partner of the management of the business, affairs and operations a limited partnership under applicable law or that are of your partnership, transact any business for your granted to the general partner under any other partnership, have any power, right or authority to provision of the AIMCO Operating Partnership Agreement, enter into any agreement, execute or sign documents the general partner, subject to the other provisions of for, make representation on behalf of nor to otherwise the AIMCO Operating Partnership Agreement, has full act so as to bind your partnership in any manner. 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, in 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 by any of them which are reasonably believed judgment or mistakes of fact or law of any act or by them to be within the scope of the authority omission if the general partner acted in good faith. conferred on them by your partnership's agreement of The AIMCO Operating Partnership Agreement provides for limited partnership, excepting only acts of malfea- indemnification of AIMCO, or any director or officer of sance, gross negligence or actual misrepresentation. In AIMCO (in its capacity as the previous general partner addition, the general partner and its affiliates are of the AIMCO Operating Partnership), the general entitled to indemnification by your partnership for any partner, any officer or director of general partner or and all acts performed by them in the good faith belief the AIMCO Operating Partnership and such other persons that the act or omission was in the best interests of as the general partner may designate from and against your partnership and which are reasonable within the all losses, claims, damages, liabilities, joint or scope of the authority conferred upon them by your several, expenses (including legal fees), fines, partnership's agreement of limited partnership or by settlements and other amounts incurred in connection your partnership, excepting only acts of malfeasance, with any actions relating to the operations of the gross negligence or actual misrepresentation; provided, AIMCO Operating Partnership, as set forth in the AIMCO however, that such indemnity will be paid out of and Operating Partnership Agreement. The Delaware Limited only to the extent of partnership assets. Partnership Act provides that subject to the standards and restrictions, if any, set forth in its
S-64 3407 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 for cause and elect a successor general partner affairs of the AIMCO Operating Partnership. The general upon a vote of the limited partners owning a majority partner may not be removed as general partner of the of the outstanding units. A general partner may not AIMCO Operating Partnership by the OP Unitholders with transfer, assign, sell, withdraw or otherwise dispose or without cause. Under the AIMCO Operating Partnership of its interest unless it obtains the prior written Agreement, the general partner may, in its sole consent of those persons owning more than 50% of the discretion, prevent a transferee of an OP Unit from units and satisfies other conditions set forth in your becoming a substituted limited partner pursuant to the partnership's agreement of limited partnership. Such AIMCO Operating Partnership Agreement. The general consent is also necessary for the approval of a new partner may exercise this right of approval to deter, general partner. A limited partner may not transfer his delay or hamper attempts by persons to acquire a interests without the written consent of the general controlling interest in the AIMCO Operating Partner- partners. 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 partners to change the name in the AIMCO Operating Partnership Agreement, whereby and location of the principal place of business of your the general partner may, without the consent of the OP partnership, change the name or the residence of a Unitholders, amend the AIMCO Operating Partnership partner, substitute a limited partner, correct an error Agreement, amendments to the AIMCO Operating in your partnership's agreement of limited part- Partnership Agreement require the consent of the nership and as required by law. Amendments of specified holders of a majority of the outstanding Common OP provisions of your partnership's agreement of limited Units, excluding AIMCO and certain other limited partnership may be made only with the prior written exclusions (a "Majority in Interest"). Amendments to consent of all partners. Other amendments must be the AIMCO Operating Partnership Agreement may be approved by the limited partners owning more than 50% proposed by the general partner or by holders of a of the units. Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives $19,000 annually and may receive other fees capacity as general partner of the AIMCO Operating for additional services. Moreover, the general partner Partnership. In addition, the AIMCO Operating Part- or certain affiliates may be entitled to compensation nership is responsible for all expenses incurred for additional services rendered. 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-65 3408 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, limited partners are not subject to negligence, no OP Unitholder has personal liability for assessment nor personally liable for any of the debts the AIMCO Operating Partnership's debts and or obligations of your partnership or any of the losses obligations, and liability of the OP Unitholders for of your partnership beyond its obligations to the AIMCO Operating Partnership's debts and obligations contribute to the capital of your partnership as is generally limited to the amount of their invest- specified in your partnership's agreement of limited ment in the AIMCO Operating Partnership. However, the partnership and as otherwise provided by law. 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 has fiduciary partnership agreement, Delaware law generally requires responsibilities to your partnership in respect of the a general partner of a Delaware limited partnership to funds and assets of your partnership and will take all adhere to fiduciary duty standards under which it owes actions which may be necessary or appropriate for the its limited partners the highest duties of good faith, proper maintenance and operation of your partnership's fairness and loyalty and which generally prohibit such property in accordance with the provisions of your general partner from taking any action or engaging in partnership's agreement of limited partnership and in any transaction as to which it has a conflict of accordance with applicable laws and regulations. The interest. The AIMCO Operating Partnership Agreement general partner will manage and control the affairs of expressly authorizes the general partner to enter into, your partnership to the best of its abilities and use on behalf of the AIMCO Operating Partnership, a right its best efforts to carry out the business of your of first opportunity arrangement and other conflict partnership as set forth in your partnership's avoidance agreements with various affiliates of the agreement of limited partnership. However, the general AIMCO Operating Partnership and the general partner, on partner may engage in or hold interests in other such terms as the general partner, in its sole and business ventures of every kind and description for its absolute discretion, believes are advisable. The AIMCO own account including, without limitation, ventures Operating Partnership Agreement expressly limits the such as those undertaken by your partnership and your liability of the general partner by providing that the partnership and the partners will have no rights in and general partner, and its officers and directors will to such independent business ventures or the income and not be liable or accountable in damages to the AIMCO profits derived therefrom. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-66 3409 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 limitations; dissolve and Units" in the accompanying transactions such as the terminate your partnership; remove Prospectus. So long as any institution of bankruptcy a general partner for cause; Preferred OP Units are outstand- proceedings, an assignment for the approve certain changes of or ing, in addition to any other vote benefit of creditors and certain transfers by a general partner and or consent of partners required by transfers by the general partner of approve or disapprove the sale of law or by the AIMCO Operating its interest in the AIMCO Operating all or substan- Partnership Agree- Part-
S-67 3410 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS tially all of the assets of your ment, the affirmative vote or nership or the admission of a partnership. consent of holders of at least 50% successor general partner. A general partner may cause the of the outstanding Preferred OP dissolution of your partnership by Units will be necessary for Under the AIMCO Operating Partner- retiring when there are no effecting any amendment of any of ship Agreement, the general partner remaining general partners unless, the provisions of the Partnership has the power to effect the the limited partners owning more Unit Designation of the Preferred acquisition, sale, transfer, than 50% of the then outstanding OP Units that materially and exchange or other disposition of units elect a new general partner adversely affects the rights or any assets of the AIMCO Operating who decides to continue your preferences of the holders of the Partnership (including, but not partnership with the approval of Preferred OP Units. The creation or limited to, the exercise or grant the limited partners owning more issuance of any class or series of of any conversion, option, than 50% of the then outstanding partnership units, including, privilege or subscription right or units. 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- Your partnership may, but is not $ per Preferred OP Unit; tribute quarterly all, or such obligated to, make current provided, however, that at any time portion as the general partner may distributions out of its cash funds and from time to time on or after in its sole and absolute discretion as the general partners may, in the fifth anniversary of the issue determine, of Available Cash (as their discretion, determine. The date of the Preferred OP Units, the defined in the AIMCO Operating distributions payable to the AIMCO Operating Partnership may Partnership Agreement) generated by partners are not fixed in amount adjust the annual distribution rate the AIMCO Operating Partnership and depend upon the operating on the Preferred OP Units to the during such quarter to the general 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. Your partner- of five years, and (ii) the annual established by the general partner ship has not made distributions in dividend rate on the most recently with respect to such quarter, in the past and is not projected to issued AIMCO non-convertible accordance with their respective made distributions in 1998. 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-68 3411 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 and be Preferred OP Units and the OP Units. The AIMCO Operating Part- substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the such person if: (1) the interest on any securities exchange. The transferability of the OP Units. being acquired by the assignee Preferred OP Units are subject to Until the expiration of one year consists of an integral multiple of restrictions on transfer as set from the date on which an OP half units, (2) a written forth in the AIMCO Operating Unitholder acquired OP Units, assignment has been duly executed Partnership Agreement. subject to certain exceptions, such and acknowledged by the assignor OP Unitholder may not transfer all and assignee, (3) the written Pursuant to the AIMCO Operating or any portion of its OP Units to approval of the general partners Partnership Agreement, until the any transferee without the consent which may be withheld in the sole expiration of one year from the of the general partner, which and absolute discretion of the date on which a holder of Preferred consent may be withheld in its sole general partners has been granted, OP Units acquired Preferred OP and absolute discretion. After the (4) the assignor or the assignee Units, subject to certain expiration of one year, such OP pays a transfer fee, (5) the exceptions, such holder of Unitholder has the right to transfer will not result in a Preferred OP Units may not transfer transfer all or any portion of its termination of your partnership for all or any portion of its Pre- OP Units to any person, subject to tax purposes and (6) the assignor ferred OP Units to any transferee the satisfaction of certain and assignee have complied with without the consent of the general conditions specified in the AIMCO such other conditions as set forth partner, which consent may be Operating Partnership Agreement, in your partnership's agreement of withheld in its sole and absolute including the general partner's limited partnership. discretion. After the expiration of right of first refusal. See one year, such holders of Preferred "Description of OP Units -- There are no redemption rights OP Units has the right to transfer Transfers and Withdrawals" in the associated with your units. all or any portion of its Preferred accompanying Prospectus. OP Units to any person, subject to the satisfaction of
S-69 3412 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-70 3413 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $19,000 annually and may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $61,478 in 1996, $64,410 in 1997 and $32,059 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's 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'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 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-71 3414 YOUR PARTNERSHIP GENERAL Shaker Square, L.P. is a Delaware limited partnership which raised net proceeds of approximately $2,656,000 in 1985 through a private offering. The promoter for the private offering of your partnership was Freeman Investment Real Estate. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 35 limited partners of your partnership and a total of 45 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 16, 1985 for the purpose of owning and operating a single apartment property located in Whitehall, Ohio, known as "Shaker Square Apartments." Your partnership's property consists of 194 apartment units. There are 194 two-bedroom apartments. The total rentable square footage of your partnership's property is 285,528 square feet. Your partnership's property had an average occupancy rate of approximately 95.88% in 1996 and 95.88% in 1997. The average annual rent per apartment unit is approximately $6,255. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $61,478, $64,410 and $32,059, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on July 1, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-72 3415 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,375,603, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $119,949, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. The Financial Statements have been prepared on an income tax basis. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 3416 Below is selected financial information for Shaker Square, L.P. derived from the financial statements described above. The amounts for 1993 have been derived from audited financial statements which are not included in this Prospectus Supplement. See "Index to Financial Statements."
SHAKER SQUARE, L.P. ---------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA Cash and Cash Equivalents........... 212,696 148,691 164,322 154,424 294,869 384,219 356,310 Land & Building..................... 5,940,420 5,778,573 5,911,892 5,731,915 5,601,906 5,466,960 5,373,191 Accumulated Depreciation............ (3,943,514) (3,678,068) (3,810,791) (3,545,345) (3,294,986) (3,070,745) (2,857,191) Other Assets........................ 675,056 660,384 663,941 580,668 589,048 621,004 641,682 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Assets............... 2,884,658 2,909,580 2,929,364 2,921,662 3,190,837 3,401,438 3,513,992 ========== ========== ========== ========== ========== ========== ========== Mortgage & Accrued Interest......... 3,343,862 3,439,597 3,398,042 3,473,228 3,542,130 3,605,272 3,663,137 Other Liabilities................... 39,956 44,009 115,434 88,416 107,184 81,677 72,629 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Liabilities.......... 3,383,818 3,483,606 3,513,476 3,561,644 3,649,314 3,686,949 3,735,766 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Partners Capital (Deficit).......... (499,160) (574,026) (584,112) (639,982) (458,477) (285,511) (221,774) ========== ========== ========== ========== ========== ========== ==========
SHAKER SQUARE, L.P. ------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue......................... 609,444 600,936 1,222,304 1,151,592 1,087,550 1,139,967 1,078,463 Other Income........................... 33,218 34,934 79,391 69,530 63,973 55,970 41,714 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Revenue................. 642,662 635,870 1,301,695 1,221,122 1,151,523 1,195,937 1,120,177 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Expenses..................... 218,947 232,727 518,119 569,524 536,422 481,649 451,948 General & Administrative............... 24,640 20,873 48,509 49,378 48,374 41,242 61,048 Depreciation........................... 132,723 132,723 265,445 250,359 236,281 225,673 235,131 Interest Expense....................... 132,148 134,563 314,859 321,143 326,902 332,332 321,036 Property Taxes......................... 49,251 49,028 98,893 95,611 76,489 76,737 79,132 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Expenses................ 557,709 569,914 1,245,825 1,286,015 1,224,468 1,157,633 1,148,295 -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income............................. 84,953 65,956 55,870 (64,893) (72,945) 38,304 (28,118) ======== ======== ========== ========== ========== ========== ==========
S-74 3417 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $84,953 for the six months ended June 30, 1998, compared to net income of $65,956 for the six months ended June 30, 1997. The increase in net income of $18,997, or 28.80% was primarily the result of an increase in revenue and a decrease in expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $642,662 for the six months ended June 30, 1998, compared to $635,870 for the six months ended June 30, 1997, an increase of $6,792, or 1.07% . Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $218,947 for the six months ended June 30, 1998, compared to $232,727 for the six months ended June 30, 1997, a decrease of $13,780 or 5.92%. Management expenses totaled $32,059 for the six months ended June 30, 1998, compared to $31,612 for the six months ended June 30, 1997, an increase of $447, or 1.41% . General and Administrative Expenses General and administrative expenses totaled $24,640 for the six months ended June 30, 1998 compared to $20,873 for the six months ended June 30, 1997, an increase of $3,767 or 18.05%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $132,148 for the six months ended June 30, 1998, compared to $134,563 for the six months ended June 30, 1997, a decrease of $2,415, or 1.79%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $55,870 for the year ended December 31, 1997, compared to a net loss of $64,893 for the year ended December 31, 1996. The increase in net income of $120,763, or 186.10% was primarily the result of increased revenue and a reduction in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,301,695 for the year ended December 31, 1997, compared to $1,221,122 for the year ended December 31, 1996, a increase of $80,573, or 6.60% . This is primarily due to an increase in occupancy levels and rental rates. S-75 3418 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $518,119 for the year ended December 31, 1997, compared to $569,524 for the year ended December 31, 1996, a decrease of $51,405 or 9.03%. This is due primarily to a reduction to non-capitalized building improvements and repairs. Management expenses totaled $64,410 for the year ended December 31, 1997, compared to $61,478 for the year ended December 31, 1996, a decrease of $2,932, or 4.77%. General and Administrative Expenses General and administrative expenses totaled $48,509 for the year ended December 31, 1997 compared to $49,378 for the year ended December 31, 1996, a decrease of $869 or 1.76%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $314,859 for the year ended December 31, 1997, compared to $321,143 for the year ended December 31, 1996, a decrease of $6,284, or 1.96%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $64,893 for the year ended December 31, 1996, compared to a net loss of $72,945 for the year ended December 31, 1995. The decrease in net loss of $8,052, or 11.04% was primarily the result of increased revenue over the increase in expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,221,122 for the year ended December 31, 1996, compared to $1,151,523 for the year ended December 31, 1995, an increase of $69,599, or 6.04% . This is primarily due to increased occupancy levels. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $569,524 for the year ended December 31, 1996, compared to $528,020 for the year ended December 31, 1995, an increase of $41,504 or 7.86%. This is primarily due to gutter repair and other maintenance expense. Management expenses totaled $61,478 for the year ended December 31, 1996, compared to $57,203 for the year ended December 31, 1995, an increase of $4,275, or 7.47%. The increase resulted from increased revenues since management fees are calculated based on a percentage of rental revenue. General and Administrative Expenses General and administrative expenses totaled $49,378 for the year ended December 31, 1996 compared to $48,374 for the year ended December 31, 1995, an increase of $1,004 or 2.08%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $321,143 for the year ended December 31, 1996, compared to $326,902 for the year ended December 31, 1995, a decrease of $5,759, or 1.76%. S-76 3419 Liquidity and Capital Resources As of June 30, 1998, your partnership had $212,696 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 partners of your partnership and their affiliates are not liable, responsible or accountable, in damages or otherwise to your partnership or any limited partner for any acts performed by any of them which are reasonably believed by them to be within the scope of the authority conferred on them by your partnership's agreement of limited partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation. 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 owned by AIMCO. See "Conflicts of Interest." The general partners and their affiliates are entitled to indemnification by your partnership for any and all acts performed by them in the good faith belief that the act or omission was in the best interests of your partnership and which are reasonable within the scope of the authority conferred upon them by your partnership's agreement of limited partnership or by your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation; provided, however, that such indemnity will be paid out of and only to the extent of partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $280.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $2,500.00 1995........................................................ 2,450.50 1996........................................................ 2,857.00 1997........................................................ 0.00 1998 (through June 30)...................................... 0.00
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been S-77 3420 effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP AIMCO currently owns a 1.25% limited partnership interest in your partnership. Except as described above, neither AIMCO, 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 transaction in the units, 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. MANAGEMENT COMPENSATION The general partner of your partnership received total compensation which includes all monies paid to the general partner by your partnership including reimbursement of expenses in its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................................ 41,022 1996........................................................ 44,648 1997........................................................ 43,130 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $57,203 1996........................................... 61,478 1997........................................... 64,410 1998 (through June 30)......................... 32,059
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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-78 3421 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 -- income tax basis of Shaker Square, L.P. at December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this Prospectus Supplement have been audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-79 3422 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Statement of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of June 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Revenues and Expenses -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)............................................... F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1997 and 1996...................................................... F-8 Statements of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1997 and 1996......................................... F-9 Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1997 and 1996.......................... F-10 Notes to Financial Statements -- Income Tax Basis........... F-11 Independent Auditors' Report................................ F-15 Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1996 and 1995...................................................... F-16 Statements of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1996 and 1995......................................... F-17 Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1996 and 1995.......................... F-18 Notes to Financial Statements -- Income Tax Basis........... F-19
F-1 3423 SHAKER SQUARE, L.P. CONDENSED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 212,696 Receivables and Deposits.................................... 126,593 Restricted Escrows.......................................... 211,199 Other Assets................................................ 337,264 Investment Property: Land...................................................... 425,000 Building and related personal property.................... 5,515,420 ----------- 5,940,420 Less: Accumulated depreciation............................ (3,943,514) 1,996,906 ----------- ---------- Total Assets:..................................... $2,884,658 ========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ 0 Other Accrued Liabilities................................... 16,522 Property Taxes Payable...................................... 0 Tenant Security Deposits.................................... 23,434 Notes Payable............................................... 3,343,862 Partners' Deficit........................................... (499,160) ---------- Total Liabilities and Partners' Deficit........... $2,884,658 ==========
See notes to interim financial statements. F-2 3424 SHAKER SQUARE, L.P. CONDENSED STATEMENTS OF REVENUES AND EXPENSES -- INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $609,444 $600,936 Other Income.............................................. 33,218 34,934 -------- -------- Total Revenues:................................... 642,662 635,870 Expenses: Operating Expenses........................................ 218,947 232,727 General and Administrative Expenses....................... 24,640 20,873 Depreciation Expense...................................... 132,723 132,723 Interest Expense.......................................... 132,148 134,563 Property Tax Expense...................................... 49,251 49,028 -------- -------- Total Expenses:................................... 557,709 569,914 Net Income........................................ $ 84,953 $ 65,956 ======== ========
See notes to interim financial statements. F-3 3425 SHAKER SQUARE, L.P. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30 ------------------- 1998 1997 -------- -------- Operating Activities: Net Income (loss)......................................... $ 84,953 $ 65,956 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization............................. 132,723 137,175 Changes in accounts: Receivables and deposits and other assets.............. (6,781) (76,695) Accounts Payable and accrued expenses.................. (75,151) (31,085) -------- -------- Net cash provided by (used in) operating activities....................................... 135,744 95,351 -------- -------- Investing Activities Property improvements and replacements.................... (28,528) (46,658) Net (increase)/decrease in restricted escrows............. (4,662) (4,199) -------- -------- Net cash provided by (used in) investing activities....... (33,190) (50,857) -------- -------- Financing Activities Distributions to partners................................. -- -- Payments on mortgage...................................... (54,180) (50,227) -------- -------- Net cash provided by (used in) financing activities....................................... (54,180) (50,227) -------- -------- Net increase (decrease) in cash and cash equivalents...... 48,374 (5,733) Cash and cash equivalents at beginning of year............ 164,322 154,424 -------- -------- Cash and cash equivalents at end of period........ $212,696 $148,691 ======== ========
See notes to interim financial statements. F-4 3426 SHAKER SQUARE, L.P. NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Shaker Square, L.P. as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 3427 SHAKER SQUARE, LIMITED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 3428 INDEPENDENT AUDITORS' REPORT General Partners Shaker Square, Limited: We have audited the accompanying statements of assets, liabilities and partners' deficit -- income tax basis of Shaker Square, Limited as of December 31, 1997 and 1996, and the related statements of revenues and expenses and changes in partners' deficit -- income tax basis and cash flows -- income tax basis for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note A, these financial statements were prepared on the basis of accounting Shaker Square, Limited uses for Federal income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shaker Square, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, on the basis of accounting described in Note A. KPMG PEAT MARWICK LLP Greenville, South Carolina February 17, 1998 F-7 3429 SHAKER SQUARE, LIMITED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 164,322 $ 154,424 Receivables and deposits.................................... 160,914 80,281 Restricted escrows (Note B)................................. 206,537 198,048 Other assets................................................ 296,490 302,339 Investment properties (Note C): Land...................................................... 425,000 425,000 Buildings and related personal property................... 5,486,892 5,306,915 ----------- ----------- 5,911,892 5,731,915 Less accumulated depreciation.......................... (3,810,791) (3,545,345) ----------- ----------- 2,101,101 2,186,570 ----------- ----------- $ 2,929,364 $ 2,921,662 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 66,383 $ 33,409 Tenant security deposit liabilities....................... 23,761 28,942 Other liabilities......................................... 25,290 26,065 Mortgage notes payable (Note C)........................... 3,398,042 3,473,228 Partners' deficit........................................... (584,112) (639,982) ----------- ----------- $ 2,929,364 $ 2,921,662 =========== ===========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-8 3430 SHAKER SQUARE, LIMITED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Revenues: Rental income............................................. $1,222,304 $1,151,592 Other income.............................................. 79,391 69,530 ---------- ---------- Total revenues.................................... 1,301,695 1,221,122 ---------- ---------- Expenses: Operating (Note D)........................................ 518,119 569,524 General and administrative (Note D)....................... 48,509 49,378 Depreciation.............................................. 265,445 250,359 Interest.................................................. 314,859 321,143 Property taxes............................................ 98,893 95,611 ---------- ---------- Total expenses.................................... 1,245,825 1,286,015 ---------- ---------- Net income (loss)........................................... 55,870 (64,893) Distributions to partners................................... -- (116,612) Partners' deficit at beginning of year...................... (639,982) (458,477) ---------- ---------- Partners' deficit at end of year............................ $ (584,112) $ (639,982) ========== ==========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-9 3431 SHAKER SQUARE, LIMITED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Cash flows from operating activities: Net income (loss)......................................... $ 55,870 $ (64,893) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 265,445 250,359 Amortization of discounts and loan costs............... 40,816 39,629 Change in accounts: Receivables and deposits............................. (80,633) 21,460 Other assets......................................... (7,759) -- Accounts payable..................................... 32,974 (21,237) Tenant security deposit liabilities.................. (5,181) 894 Other liabilities.................................... (775) 1,575 --------- --------- Net cash provided by operating activities......... 300,757 227,787 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (179,977) (130,009) Net (deposits to) and receipts from restricted escrows.... (8,489) 1,359 --------- --------- Net cash used in investing activities............. (188,466) (128,650) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (102,393) (94,922) Distributions to partners................................. -- (116,612) --------- --------- Net cash used in financing activities............. (102,393) (211,534) --------- --------- Net increase (decrease) in cash and cash equivalents........ 9,898 (112,397) Cash and cash equivalents at beginning of year.............. 154,424 266,821 --------- --------- Cash and cash equivalents at end of year.................... $ 164,322 $ 154,424 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 274,043 $ 281,514 ========= =========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-10 3432 SHAKER SQUARE, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Shaker Square, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Certificate and Agreement of Limited Partnership dated October 16, 1985. The Partnerships owns and operates a 194 unit multi-family housing complex, Shaker Square Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Davidson Properties, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Basis of Accounting The financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned and (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, and (3) syndication costs are not amortized. On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. Depreciation Depreciation is provided for in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS, and MACRS, using the straight-line and accelerated methods on both real and personal property. Under generally accepted accounting principles, the cost of depreciable assets would be allocated systematically over their estimated useful lives. Other Assets Other assets at December 31, 1997 and 1996 include unamortized deferred loan costs of $66,894 and $80,503, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Also included in other assets are syndication costs of $221,836 which are not amortized. F-11 3433 SHAKER SQUARE, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Reserve Escrow -- A portion of the proceeds of the 1992 loan refinancing was used to establish a reserve escrow. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan...... $206,537 $198,048 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996, consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $30,610, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,430,162 $3,532,555 Second mortgage note payable in monthly installments of $760, interest only at 7.60%, principal due November 2002; collateralized by land and buildings...................... 119,949 119,949 ---------- ---------- Principal balance at year end............................... 3,550,111 3,652,504 Less amortized discount..................................... (152,069) (179,276) ---------- ---------- $3,398,042 $3,473,228 ========== ==========
F-12 3434 SHAKER SQUARE, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998.................................................... $ 110,451 1999.................................................... 119,144 2000.................................................... 128,521 2001.................................................... 138,637 2002.................................................... 3,053,358 ---------- $3,550,111 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee.............................................. $64,410 $61,478 Partnership administration fee.............................. $17,413 $18,996 Reimbursement for services of affiliates.................... $23,717 $22,921 Construction oversight costs................................ $ 2,000 $ 2,731
F-13 3435 SHAKER SQUARE, LIMITED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 3436 INDEPENDENT AUDITORS' REPORT General Partners Shaker Square, Limited: We have audited the accompanying statements of assets, liabilities and partners' deficit -- income tax basis of Shaker Square, Limited as of December 31, 1996 and 1995, and the related statements of revenues and expenses and changes in partners' deficit -- income tax basis and cash flows income tax basis for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note A, these financial statements were prepared on the basis of accounting Shaker Square, Limited uses for Federal income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shaker Square, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, on the basis of accounting described in Note A. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 25, 1997 F-15 3437 SHAKER SQUARE, LIMITED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 154,424 $ 266,821 Restricted-tenant security deposits....................... 28,942 28,048 Accounts receivable......................................... 4,219 2,589 Escrow for taxes............................................ 47,120 71,104 Restricted escrows (Note B)................................. 198,048 199,407 Other assets................................................ 302,339 315,948 Investment properties (Note C): Land...................................................... 425,000 425,000 Buildings and related personal property................... 5,306,915 5,176,906 ----------- ----------- 5,731,915 5,601,906 Less accumulated depreciation............................. (3,545,345) (3,294,986) ----------- ----------- 2,186,570 2,306,920 ----------- ----------- $ 2,921,662 $ 3,190,837 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 33,409 $ 54,646 Tenant security deposits.................................. 28,942 28,048 Other liabilities......................................... 26,065 24,490 Mortgage notes payable (Note C)........................... 3,473,228 3,542,130 Partners' deficit........................................... (639,982) (458,477) ----------- ----------- $ 2,921,662 $ 3,190,837 =========== ===========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-16 3438 SHAKER SQUARE, LIMITED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $1,151,592 $1,087,550 Other income.............................................. 69,530 63,973 ---------- ---------- Total revenues.................................... 1,221,122 1,151,523 ---------- ---------- Expenses: Operating (Note D)........................................ 369,436 372,815 General and administrative (Note D)....................... 49,378 48,374 Maintenance............................................... 200,088 155,205 Depreciation.............................................. 250,359 236,281 Interest.................................................. 321,143 326,902 Property taxes............................................ 95,611 76,489 ---------- ---------- Total expenses.................................... 1,286,015 1,216,066 ---------- ---------- Loss on disposition of property............................. -- (8,402) ---------- ---------- Net loss.................................................... (64,893) (72,945) Distributions to partners................................... (116,612) (100,021) Partners' deficit at beginning of year...................... (458,477) (285,511) ---------- ---------- Partners' deficit at end of year............................ $ (639,982) $ (458,477) ========== ==========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-17 3439 SHAKER SQUARE, LIMITED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Cash flows from operating activities: Net loss.................................................. $ (64,893) $ (72,945) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 250,359 236,281 Amortization of discounts and loan costs............... 39,629 38,758 Loss on disposition of property........................ -- 8,402 Change in accounts: Restricted cash...................................... (894) 7,517 Accounts receivable.................................. (1,630) 1,412 Escrow for taxes..................................... 23,984 342 Accounts payable..................................... (21,237) 28,725 Tenant security deposit liabilities.................. 894 (5,305) Other liabilities.................................... 1,575 2,087 --------- --------- Net cash provided by operating activities......... 227,787 245,274 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (130,009) (155,388) Deposits to restricted escrows............................ (8,283) (8,604) Receipts from restricted escrows.......................... 9,642 24,902 --------- --------- Net cash used in investing activities............. (128,650) (139,090) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (94,922) (87,996) Distributions to partners................................. (116,612) (100,021) --------- --------- Net cash used in financing activities............. (211,534) (188,017) --------- --------- Net decrease in cash and cash equivalents................... (112,397) (81,833) Cash and cash equivalents at beginning of year.............. 266,821 348,654 --------- --------- Cash and cash equivalents at end of year.................... $ 154,424 $ 266,821 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 281,514 $ 288,440 ========= =========
See Accompanying Notes to Financial Statements -- Income Tax Basis F-18 3440 SHAKER SQUARE, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Shaker Square, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Certificate and Agreement of Limited Partnership dated October 16, 1985. The Partnerships owns and operates a 194 unit multi-family housing complex, Shaker Square Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Davidson Properties, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Basis of Accounting The financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned and (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, and (3) syndication costs are not amortized. On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. Depreciation Depreciation is provided for in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Under generally accepted accounting principles, the cost of depreciable assets would be allocated systematically over their estimated useful lives. Other Assets Other assets at December 31, 1996 and 1995 include deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Also included in other assets are syndication costs of $221,836 which are not amortized. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. F-19 3441 SHAKER SQUARE, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 198,048 199,407 -------- -------- $198,048 $199,407 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995, consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $30,610, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,532,555 $3,627,477 Second mortgage note payable in monthly installments of $760, interest only at 7.60%, principal due November 2002; collateralized by land and buildings...................... 119,949 119,949 ---------- ---------- Principal balance at year end............................... 3,652,504 3,747,426 Less amortized discount..................................... (179,276) (205,296) ---------- ---------- $3,473,228 $3,542,130 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997.................................................... $ 102,393 1998.................................................... 110,451 1999.................................................... 119,144 2000.................................................... 128,521 2001.................................................... 138,637 Thereafter.............................................. 3,053,358 ---------- $3,652,504 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-20 3442 SHAKER SQUARE, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee.............................................. $61,478 $57,203 Partnership administration fee.............................. $18,996 $18,996 Reimbursement for services of affiliates.................... $22,921 $22,026 Construction oversight costs................................ $ 2,731 $ --
F-21 3443 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 3444 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 3445 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 September , 1998 A-3 3446 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF SHANNON MANOR APARTMENTS, A 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 3447 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-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 Shannon Manor Apartments, a 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 Certain Tax Consequences to Non-Tendering and Partially-Tendering Unitholders............ S-53 VALUATION OF UNITS............................. S-54 FAIRNESS OF THE OFFER.......................... S-55 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-55 Fairness to Unitholders who Tender their Units...................................... S-56 Fairness to Unitholders who do not Tender their Units................................ S-57 Comparison of Consideration to Alternative Consideration.............................. S-57 Allocation of Consideration.................. S-58 STANGER ANALYSIS............................... S-59 Experience of Stanger........................ S-59 Summary of Materials Considered.............. S-59 Summary of Reviews........................... S-60 Conclusions.................................. S-61 Assumptions, Limitations and Qualifications............................. S-61 Compensation and Material Relationships...... S-62 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-63 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-68 CONFLICTS OF INTEREST.......................... S-72 Conflicts of Interest with Respect to the Offer...................................... S-72 Conflicts of Interest that Currently Exist for Your Partnership....................... S-72 Competition Among Properties................. S-72 Features Discouraging Potential Takeovers.... S-72 Future Exchange Offers....................... S-72
i 3448
PAGE ---- YOUR PARTNERSHIP............................... S-73 General...................................... S-73 Your Partnership and its Property............ S-73 Property Management.......................... S-73 Investment Objectives and Policies; Sale or Financing of Investments................... S-73 Capital Replacement.......................... S-74 Borrowing Policies........................... S-74 Competition.................................. S-74 Legal Proceedings............................ S-74 Selected Financial Information............... S-74 Balance Sheet Data......................... S-75 Statement of Operation Data................ S-75 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-76 Fiduciary Responsibility of the General Partner of Your Partnership................ S-78
PAGE ---- Distributions and Transfers of Units......... S-78 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-79 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-80 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
ii 3449 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 Shannon Manor Apartments, a 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 3450 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 3451 - 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 $2.50 per unit for the six months ended June 30, 1998 (equivalent to $5.00 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 distributions of $ 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 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 3452 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer 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. 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-4 3453 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 100% of 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? 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: 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 3454 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 3455 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. 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. 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 5 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. 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 S-7 3456 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. 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 Code. The particular tax consequences to you of the exchange 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 3457 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the 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 3458 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. 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. MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 3459 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, 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 3460 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 0% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of related partners holding at least 67% of the units of your partnership. In the absence of such consent, your only 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 3461 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 S-13 3462 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 3463 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 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 3464 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 3465 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 3466 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, unlike with the general partner of the AIMCO Operating Partnership, the liability of the general partners of your partnership to your partnership or the limited partners for acts performed in their capacity as general partner is not limited. 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 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 generated in that capacity. The property manager received management fees of $108,745 in 1996, $112,600 in 1997 and $58,554 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. S-18 3467 YOUR PARTNERSHIP Your Partnership and its Property. Shannon Manor Apartments, a Limited Partnership is a South Carolina limited partnership which was formed on December 22, 1972 for the purpose of owning and operating a single apartment property located in Durham, North Carolina, known as Shannon Manor Apartments. In 1972, it completed a private placement of units. Your partnership has no employees. Property Management. Since December 1990, your partnership's property has been managed by an entity which is our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on October 1, 2017, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,258,233, payable to USGI, Inc., which bears interest at a rate of 7.00%. The mortgage debt is due in August 2014. Your partnership's agreement of limited partnership does not prohibit your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no outstanding loans to the partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 3468 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 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 3469
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 3470 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 3471
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 3472 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 3473 SUMMARY FINANCIAL INFORMATION OF SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP The summary financial information of Shannon Manor Apartments, a Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Shannon Manor Apartments, a 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 of Your Partnership" included herein. See "Index to Financial Statements." SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- --------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ----------- Operating Data: Total Revenues............. $ 826,300 $ 807,529 $1,598,809 $1,522,984 $1,452,350 $1,368,036 $ 1,321,619 Net Income/(Loss)................ $ 265,500 $ 182,492 $ 416,494 $ 411,286 $ 403,382 $ 340,074 $ 209,639 Balance Sheet Data: Real Estate, Net of Accumulated Depreciation................... $1,891,354 $1,863,668 $1,980,119 $1,840,257 $1,275,415 $1,211,280 $ 1,162,025 Total Assets............... 2,829,157 2,472,353 2,609,555 2,377,203 1,988,113 1,803,157 1,614,673 Mortgage Notes Payable, including Accrued Interest............... 2,278,462 2,351,414 2,239,924 2,386,059 2,452,209 2,513,898 2,571,431 Partners' Capital/(Deficit)...... $ 498,486 $ 59,712 $ 257,382 $ (122,780) $ (511,318) $ (746,319) $(1,000,324)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $2.50 $1.32
S-25 3474 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. 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 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 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. S-26 3475 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 Code. 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 therefore 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 apartment property. In contrast, the AIMCO Operating Partnership is in the business of acquiring, S-27 3476 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, and distributions with respect to your units for the six months ended June 30, 1998 were $2.50 per unit (equivalent to $5.00 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 an 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 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 S-28 3477 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 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. Moody's 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 level 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 S-29 3478 Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 67% of the units of in your partnership. In the absence of such consent, your only 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 would 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 apartment 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. S-30 3479 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 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 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 3480 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 3481 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 3482 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. 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. S-34 3483 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." 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. 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. S-35 3484 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, (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 9:00 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 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, Denver, Colorado time. S-36 3485 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 3486 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. 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 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 S-38 3487 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 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 S-39 3488 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 3489 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. 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. 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-41 3490 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-42 3491 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 payment. 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 OP Units and any such S-43 3492 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-44 3493 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-45 3494 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-46 3495 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-47 3496 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-48 3497 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-49 3498 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 3499 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-51 3500 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 3501 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 UNITHOLDERS 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 unitholders who do not tender all of their units (a "Remaining Unitholders") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Unitholder will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Unitholders in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Unitholder'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 Unitholders 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 Unitholders 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 unitholder 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 unitholders. In the case of a Remaining Unitholder 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 unitholder's taxable income for the year of Termination. S-53 3502 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-54 3503 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-55 3504 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 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, a third party expert, 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 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 $2.50 per unit (equivalent to $5.00 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-56 3505 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-57 3506 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. 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-58 3507 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of S-59 3508 your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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 September 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 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 property was 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-60 3509 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-61 3510 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-1. 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 $9,000 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-62 3511 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Shannon Manor Apartments. 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 Receipts (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 October 1, Agreement") or as provided by law. See "Description of 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 construct, own, The purpose of the AIMCO Operating Partnership is to improve, maintain, operate, lease and dispose of your conduct any business that may be lawfully conducted by partnership's property for capital appreciation and the a limited partnership organized pursuant to the production of income. Subject to restrictions contained Delaware Revised Uniform Limited Partnership Act (as in your partnership's agreement of limited partnership, amended from time to time, or any successor to such your partnership may do all things necessary for or statute) (the "Delaware Limited Partnership Act"), incidental to the protection and benefit of your provided that such business is to be conducted in a partnership, including, borrowing funds 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-63 3512 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership, with the The general partner is authorized to issue additional consent of the limited partners, are authorized to partnership interests in the AIMCO Operating admit additional limited partners and allow additional Partnership for any partnership purpose from time to capital contributions by current limited partners. The time to the limited partners and to other persons, and capital contribution need not be equal for all limited to admit such other persons as additional limited partners. partners, on terms and conditions and for such capital contributions as may be established by the general partner in its sole discretion. The net capital contribution need not be equal for all OP Unitholders. No action or consent by the 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 The fact that a partner is employed by, or is directly The AIMCO Operating Partnership may lend or contribute or indirectly interested in or connection with any funds or other assets to its subsidiaries or other person, firm or corporation employed by your persons in which it has an equity investment, and such partnership to render or perform a service, or from persons may borrow funds from the AIMCO Operating whom or which your partnership may buy merchandise or Partnership, on terms and conditions established in the other property, will not prohibit the general partners sole and absolute discretion of the general partner. To from executing a lease with or employing such person, the extent consistent with the business purpose of the firm or corporation or from otherwise dealing with him AIMCO Operating Partnership and the permitted or it. 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 Your partnership may to borrow money for partnership The AIMCO Operating Partnership Agreement contains no purposes, mortgage, pledge or encumber any or all of restrictions on borrowings, and the general partner has the property of your partnership as securities for such full power and authority to borrow money on behalf of borrowings or as security for any purchase money the AIMCO Operating Partnership. The AIMCO Operating mortgage involved in the purchase of your partnership's Partnership has credit agreements that restrict, among property. other things, its ability to incur indebtedness. See "Risk Factors -- Risks of Significant Indebtedness" in the accompanying Prospectus.
S-64 3513 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 provides that the books of account, together with a with a statement of the purpose of such demand and at copy of your partnership's agreement of limited such OP Unitholder's own expense, to obtain a current partnership and any amendments thereto, will at all list of the name and last known business, residence or times be maintained at the principal office of your mailing address of the general partner and each other partnership and will be open to the reasonable OP Unitholder. inspection and examination of the partners or their duly authorized representatives.
Management Control The general management, control and conduct of the All management powers over the business and affairs of business of your partnership is vested exclusively in the AIMCO Operating Partnership are vested in AIMCO-GP, the general partner. All decisions are made by Inc., which is the general partner. No OP Unitholder agreement of the general partner. No limited partner has any right to participate in or exercise control or may take part in or interfere in any manner with the management power over the business and affairs of the conduct or control of the business of your partnership AIMCO Operating Partnership. The OP Unitholders have and no limited partner has the right or authority to the right to vote on certain matters described under act for or bind your partnership. "Comparison of Ownership of Your Units and AIMCO OP 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 to the limited partners for any act or partner is not liable to the AIMCO Operating omission performed or omitted in good faith, pursuant Partnership for losses sustained, liabilities incurred to the authority granted to them to promote the or benefits not derived as a result of errors in interests of your partnership, except for act or judgment or mistakes of fact or law of any act or omission which constitute fraud or gross negligence. omission if the general partner acted in good faith. However, your partnership's agreement of limited The AIMCO Operating Partnership Agreement provides for partnership does not provide for indemnification of the indemnification of AIMCO, or any director or officer of general partner and its affiliates. AIMCO (in its capacity as the previous general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its
S-65 3514 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 does not provide for the removal of a has exclusive management power over the business and general partner by the limited partners. A general affairs of the AIMCO Operating Partnership. The general partner may not withdraw from your partnership without partner may not be removed as general partner of the the written consent of limited partners owning 75% of AIMCO Operating Partnership by the OP Unitholders with the units. The unanimous written consent of all or without cause. Under the AIMCO Operating Partnership partners is necessary to admit a new general partner. A Agreement, the general partner may, in its sole limited partner may transfer its interest in accordance discretion, prevent a transferee of an OP Unit from with applicable law but such transferee does not become becoming a substituted limited partner pursuant to the a substituted limited partner without the consent of AIMCO Operating Partnership Agreement. The general the general partners and the limited 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 With the exception of certain circumstances set forth does not provide for amendments. However, your in the AIMCO Operating Partnership Agreement, whereby partnership's agreement of limited partnership has been the general partner may, without the consent of the OP amended subsequent to its original filing. Unitholders, amend the AIMCO Operating Partnership Agreement, amendments to the AIMCO Operating Partnership Agreement require the consent of the holders of a majority of the outstanding Common OP Units, excluding AIMCO and certain other limited exclusions (a "Majority in Interest"). Amendments to the AIMCO Operating Partnership Agreement may be proposed by the general partner or by holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to compensation for additional services nership is responsible for all expenses incurred rendered. 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-66 3515 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under South Carolina law, the limited partners are not Except for fraud, willful misconduct or gross liable directly or indirectly for debts, obligations negligence, no OP Unitholder has personal liability for and liabilities of your partnership. However, if a the AIMCO Operating Partnership's debts and limited partner takes actions on behalf of your obligations, and liability of the OP Unitholders for partnership, such limited partner will be responsible the AIMCO Operating Partnership's debts and obligations for any liability which may result from such actions. 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 The general partner of your partnership may engage in Unless otherwise provided for in the relevant or possess an interest in other business ventures of partnership agreement, Delaware law generally requires every nature and description, including but not limited a general partner of a Delaware limited partnership to to the ownership, financing, leasing, operation, adhere to fiduciary duty standards under which it owes management, syndication, brokerage and development of its limited partners the highest duties of good faith, real property; and neither your partnership nor the fairness and loyalty and which generally prohibit such partners will have any rights in or to such independent general partner from taking any action or engaging in ventures or to the income or profits derived therefrom. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-67 3516 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, the applicable law or in the AIMCO ship Agreement, the OP Unitholders approval of holders of 75% of the Operating Partnership Agreement, have voting rights only with units is needed to approve the the holders of the Preferred OP respect to certain limited matters withdrawal of a general partner and Units will have the same voting such as certain amendments and to send a notice to the general rights as holders of the Common OP termination of the AIMCO Operating partner stating that they have Units. See "Description of OP Partnership Agreement and certain determined that your partnership is Units" in the accompanying transactions such as the dissolving due to an action by the Prospectus. So long as any institution of bankruptcy general partners making it Preferred OP Units are outstand- proceedings, an assignment for the impossible for your partnership to ing, in addition to any other vote benefit of creditors and certain carry on its business in a normal or consent of partners required by transfers by the general partner of fashion. Within thirty days of such law or by the AIMCO Operating its interest in the AIMCO Operating notice, if all of Partnership Agree- Part-
S-68 3517 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS the limited partners agree to ment, the affirmative vote or nership or the admission of a continue the business of your consent of holders of at least 50% successor general partner. partnership, a new general partner of the outstanding Preferred OP may be elected to carry on the Units will be necessary for Under the AIMCO Operating Partner- business of your partnership. Upon effecting any amendment of any of ship Agreement, the general partner the vote of the general partner and the provisions of the Partnership has the power to effect the the limited partners owning at Unit Designation of the Preferred acquisition, sale, transfer, least 67% of the units, your OP Units that materially and exchange or other disposition of partnership may dissolve and may adversely affects the rights or any assets of the AIMCO Operating sell all or substantially of its preferences of the holders of the Partnership (including, but not interest in all partnership assets. Preferred OP Units. The creation or limited to, the exercise or grant The consent of the general partner issuance of any class or series of of any conversion, option, and all limited partners is partnership units, including, privilege or subscription right or necessary to admit a general without limitation, any partner- any other right available in partner or a limited partner. 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 receipts $ per Preferred OP Unit; tribute quarterly all, or such are disbursed at reasonable provided, however, that at any time portion as the general partner may intervals as determined by the and from time to time on or after in its sole and absolute discretion general partners in their absolute the fifth anniversary of the issue determine, of Available Cash (as discretion. Your partnership has date of the Preferred OP Units, the defined in the AIMCO Operating made distributions in the past and AIMCO Operating Partnership may Partnership Agreement) generated by is projected to make distributions adjust the annual distribution rate the AIMCO Operating Partnership in 1998. 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. Holders of any other Pre-
S-69 3518 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 mortgage There is no public market for the There is no public market for the its interest but may otherwise Preferred OP Units and the OP Units. The AIMCO Operating Part- assign, sell or dispose of its Preferred OP Units are not listed nership Agreement restricts the interest in accordance with on any securities exchange. The transferability of the OP Units. applicable law. A transferee may Preferred OP Units are subject to Until the expiration of one year become a substituted limited restrictions on transfer as set from the date on which an OP partner upon the approval of the forth in the AIMCO Operating Unitholder acquired OP Units, general partner and the consent of Partnership Agreement. subject to certain exceptions, such the limited partners. OP Unitholder may not transfer all There are no redemption rights Pursuant to the AIMCO Operating or any portion of its OP Units to associated with your units. Partnership Agreement, until the any transferee without the consent expiration of one year from the of the general partner, which date on which a holder of Preferred consent may be withheld in its sole OP Units acquired Preferred OP and absolute discretion. After the Units, subject to certain expiration of one year, such OP exceptions, such holder of Unitholder has the right to Preferred OP Units may not transfer transfer all or any portion of its all or any portion of its Pre- OP Units to any person, subject to 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
S-70 3519 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-71 3520 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 in that capacity. The property manager received management fees of $108,745 in 1996, $112,600 in 1997 and $58,554 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's 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'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 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-72 3521 YOUR PARTNERSHIP GENERAL Shannon Manor Apartments is a South Carolina limited partnership which raised net proceeds of approximately $ in 1972 through a private offering. Insignia acquired your partnership in December 1990. AIMCO acquired Insignia in October, 1998. There are currently a total of 17 limited partners of your partnership and a total of 9,649 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on December 22, 1972 for the purpose of owning and operating a single apartment property located in Durham, North Carolina, known as "Shannon Manor Apartments." Your partnership's property consists of 230 apartment units. There are 24 one-bedroom apartments, 138 two-bedroom apartments and 68 three-bedroom apartments. The total rentable square footage of your partnership's property is 205,480 square feet. Your partnership's property had an average occupancy rate of approximately 98.26% in 1996 and 98.26% in 1997. The average annual rent per apartment unit is approximately $6,609. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1990, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $108,745, $112,600 and $58,554, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on October 1, 2017 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-73 3522 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,258,233, payable to USGI, Inc., which bears interest at a rate of 7.00%. The mortgage debt is due in August 2014. Your partnership's agreement of limited partnership does not prohibit the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-74 3523 Below is selected financial information for Shannon Manor Apartments, a Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 589,044 $ 191,816 $ 77,342 $ 71,271 $ 165,844 $ 237,815 $ 212,297 Land & Building.............. 5,451,211 5,242,354 5,449,390 5,128,357 4,430,794 4,261,377 4,109,205 Accumulated Depreciation..... (3,559,857) (3,378,686) (3,469,271) (3,288,100) (3,155,379) (3,050,097) (2,947,180) Other Assets................. 348,759 416,869 552,094 465,675 546,854 354,062 240,351 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 2,829,157 $ 2,472,353 $ 2,609,555 $ 2,377,203 $ 1,988,113 $ 1,803,157 $ 1,614,673 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... $ 2,278,462 $ 2,351,414 $ 2,239,924 $ 2,386,059 $ 2,452,209 $ 2,513,898 $ 2,571,431 Other Liabilities............ 52,210 61,228 112,249 113,924 47,222 35,578 43,566 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 2,330,672 2,412,642 2,352,173 2,499,983 2,499,431 2,549,476 2,614,997 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $ 498,486 $ 59,712 $ 257,382 $ (122,780) $ (511,318) $ (746,319) $(1,000,324) =========== =========== =========== =========== =========== =========== ===========
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- STATEMENT OF OPERATION DATA Rental Revenue............... $ 791,850 $ 762,381 $ 1,519,975 $ 1,468,745 $ 1,381,641 $ 1,288,221 $ 1,258,844 Other Income................. 34,450 45,148 78,834 54,239 70,709 79,815 62,775 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue....... 826,300 807,529 1,598,809 1,522,984 1,452,350 1,368,036 1,321,619 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Expenses........... 204,141 264,881 426,044 428,044 421,696 371,603 494,988 General & Administrative..... 134,137 135,202 312,415 279,692 267,457 271,462 218,676 Depreciation................. 90,586 90,586 181,171 136,731 105,282 102,917 103,418 Interest Expense............. 80,094 82,526 163,821 168,192 172,652 176,810 193,744 Property Taxes............... 51,842 51,842 98,864 99,039 81,881 105,170 101,154 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Expenses...... 560,800 625,037 1,182,315 1,111,698 1,048,968 1,027,962 1,111,980 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Income................... $ 265,500 $ 182,492 $ 416,494 $ 411,286 $ 403,382 $ 340,074 $ 209,639 =========== =========== =========== =========== =========== =========== ===========
S-75 3524 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $265,500 for the six months ended June 30, 1998, compared to $182,492 for the six months ended June 30, 1997. The increase in net income of $83,008, or 45.79% was primarily the result of a decrease in operating expenses and an increase in total revenue. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $826,300 for the six months ended June 30, 1998, compared to $807,529 for the six months ended June 30, 1997, an increase of $18,771, or 2.32%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $197,653 for the six months ended June 30, 1998, compared to $264,881 for the six months ended June 30, 1997, a decrease of $67,228 or 25.38%. Management fees totaled $58,554 for the six months ended June 30, 1998, compared to $57,799 for the six months ended June 30, 1997, a decrease of $755, or 1.31%. related to non-capitalizable property improvements. General and Administrative Expenses General and administrative expenses totaled $134,138 for the six months ended June 30, 1998 compared to $135,202 for the six months ended June 30, 1997, a decrease of $1,064 . Interest Expense Interest expense totaled $80,094 for the six months ended June 30, 1998, compared to $82,526 for the six months ended June 30, 1997, a decrease of $2,432, or 2.95%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $416,494 for the year ended December 31, 1997, compared to $411,286 for the year ended December 31, 1996, an increase in net income of $5,208, or 1.27% Revenues Rental and other property revenues from the partnership's property totaled $1,598,809 for the year ended December 31, 1997, compared to $1,522,984 for the year ended December 31, 1996, an increase of $75,825, or 4.98%. This increase was primarily the result of an increase in occupancy. S-76 3525 Expenses Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, and insurance, totaled $426,044 for the year ended December 31, 1997, compared to $428,044 for the year ended December 31, 1996, a decrease of $2,000 or 0.47%. Management expenses totaled $112,600 for the year ended December 31, 1997, compared to $108,745 for the year ended December 31, 1996, an increase of $3,855, or 3.54%. The increase resulted from an increase in rental revenues as management fees are calculated based on a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $312,415 for the year ended December 31, 1997 compared to $279,692 for the year ended December 31, 1996, an increase of $32,723 or 11.70%. The increase is primarily due to an increase in manager rent-free unit expense. There was also an increase in bad debts due to a higher amount of rent revenue being deemed uncollectible. Interest Expense Interest expense totaled $163,821 for the year ended December 31, 1997, compared to $168,192 for the year ended December 31, 1996, a decrease of $4,371, or 2.60%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $411,286 for the year ended December 31, 1996, compared to $403,382 for the year ended December 31, 1995, an increase in net income of $7,904, or 1.96%. Revenues Rental and other property revenues from the partnership's property totaled $1,522,984 for the year ended December 31, 1996, compared to $1,452,350 for the year ended December 31, 1995, an increase of $70,634, or 4.86%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $428,044 for the year ended December 31, 1996, compared to $421,696 for the year ended December 31, 1995, an increase of $6,348 or 1.51%. Management expenses totaled $108,745 for the year ended December 31, 1996, compared to $103,821 for the year ended December 31, 1995, an increase of $4,924, or 4.74%. General and Administrative Expenses General and administrative expenses totaled $279,692 for the year ended December 31, 1996 compared to $267,457 for the year ended December 31, 1995, an increase of $12,235 or 4.57%. Interest Expense Interest expense totaled $168,192 for the year ended December 31, 1996, compared to $172,652 for the year ended December 31, 1995, a decrease of $4,460, or 2.58%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $589,044 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. S-77 3526 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 partners of your partnership are not liable to the limited partners for any act or omission performed or omitted in good faith, pursuant to the authority granted to them to promote the interests of your partnership, except for act or omission which constitute fraud or gross negligence. 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 owned by AIMCO. See "Conflicts of Interest". Your partnership's agreement of limited partnership does not provide for indemnification of the general partners and their affiliates. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $10.00 1995........................................................ 7.50 1996........................................................ 15.00 1997........................................................ 1.32 1998 (through June 30)...................................... 2.50
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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-78 3527 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The general partner of your partnership received total compensation (which includes all monies to the general partner including reimbursement of expenses) in capacity of its general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $13,250 1995........................................................ 13,553 1996........................................................ 18,540 1997........................................................ 22,628
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $103,821 1996........................................... 108,745 1997........................................... 112,600 1998 (through June 30)......................... 58,554
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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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. S-79 3528 EXPERTS The financial statements of Shannon Manor Apartments, a Limited Partnership at December 31, 1997, 1996, and 1995 and for each of the three years in the period ended December 31, 1997, appearing in this Prospectus Supplement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-80 3529 INDEX FINANCIAL STATEMENT
FINANCIAL STATEMENTS OF SHANNON MANOR APARTMENTS, LIMITED PARTNERSHIP PAGE - --------------------------------------------------------------------- ---- Condensed Balance Sheet as of June 30, 1998 (Unaudited)......... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (Unaudited)................................................... F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (Unaudited)..................................... F-4 Note A -- Basis of Presentation................................. F-4 Independent Auditors' Report.................................... F-5 Balance Sheet as of December 31, 1997........................... F-6 Statement of Profit and Loss for the year ended December 31, 1997... F-7 Statement of Changes in Deficit/Equity for the year ended December 31, 1997...................................................... F-11 Statement of Cash Flows for the year ended December 31, 1997.... F-12 Notes to Financial Statements................................... F-13 Independent Auditors' Report.................................... F-16 Balance Sheet as of December 31, 1996........................... F-17 Statement of Profit and Loss for the year ended December 31, 1996... F-18 Statement of Changes in Deficit/Equity for the year ended December 31, 1996...................................................... F-22 Statement of Cash Flows for the year ended December 31, 1996.... F-23 Notes to Financial Statements................................... F-24 Independent Auditors' Report.................................... F-26 Balance Sheet as of December 31, 1995........................... F-27 Statement of Profit and Loss for the year ended December 31, 1995... F-28 Statement of Changes in Deficit/Equity for the year ended December 31, 1995...................................................... F-32 Statement of Cash Flows for the year ended December 31, 1995.... F-33 Notes to Financial Statements................................... F-34
F-1 3530 SHANNON MANOR APARTMENTS CONDENSED BALANCE SHEET JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 589,044 Receivables and Deposits.................................... 57,862 Restricted Escrows.......................................... 86,647 Other Assets................................................ 204,250 Investment Property: Land...................................................... 211,500 Building and related personal property.................... 5,239,711 ---------- 5,451,211 Less: Accumulated depreciation............................ (3,559,857) 1,891,354 ---------- ---------- Total Assets:..................................... $2,829,157 ========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 5,741 Other Accrued Liabilities................................... 3,401 Property Taxes Payable...................................... 38,973 Tenant Security Deposits.................................... 17,932 Notes Payable............................................... 2,264,624 Partners' Capital........................................... 498,486 ---------- Total Liabilities and Partners' Capital........... $2,829,157 ==========
F-2 3531 SHANNON MANOR APARTMENTS CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $791,850 $762,381 Other Income.............................................. 34,450 45,148 -------- -------- Total Revenues.................................... 826,300 807,529 Expenses: Operating Expenses........................................ 204,141 264,881 General and Administrative Expenses....................... 134,137 135,202 Depreciation Expense...................................... 90,586 90,586 Interest Expense.......................................... 80,094 82,526 Property Tax Expense...................................... 51,842 51,842 -------- -------- Total Expenses.................................... 560,800 625,037 -------- -------- Net Income........................................ $265,500 $182,492 ======== ========
F-3 3532 SHANNON MANOR APARTMENTS CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30 ------------------------- 1998 1997 ----------- ----------- Operating Activities: Net Income (loss)......................................... $ 265,500 $ 182,492 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 90,586 90,586 Changes in accounts: Receivables and deposits and other assets............ (111,513) (23,654) Accounts Payable and accrued expenses................ 15,576 (52,696) --------- --------- Net cash provided by (used in) operating activities...................................... 260,149 196,728 --------- --------- Investing Activities Property improvements and replacements.................... (1,821) (113,997) Net (increase)/decrease in restricted escrows............. 314,847 72,459 --------- --------- Net cash provided by (used in) investing activities...................................... 313,026 (41,538) --------- --------- Financing Activities Distributions to partners................................. (24,396) -- Payments on mortgage...................................... (37,077) (34,645) --------- --------- Net cash provided by (used in) financing activities...................................... (61,473) (34,645) --------- --------- Net increase (decrease) in cash and cash equivalents..................................... 511,702 120,545 Cash and cash equivalents at beginning of year.............. 77,342 71,271 --------- --------- Cash and cash equivalents at end of period.................. $ 589,044 $ 191,816 ========= =========
NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Shannon Manor Apartments as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-4 3533 REPORT OF INDEPENDENT AUDITORS The General Partners Shannon Manor Apartments, A Limited Partnership We have audited the accompanying balance sheet of Shannon Manor Apartments, A Limited Partnership (FHA Project No. 053-35064-PM) as of December 31, 1997 and the related statements of profit and loss, changes in deficit/equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shannon Manor Apartments, A Limited Partnership at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 10, 1998 Greenville, South Carolina F-5 3534 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM BALANCE SHEET DECEMBER 31, 1997 ASSETS Current assets 1110 Petty cash........................................... $ 300 1120 Unrestricted cash.................................... 55,585 1130 Tenant accounts receivable, net of allowance for doubtful accounts of $10,087........................... 10,536 ---------- Total current assets.............................. 66,421 Deposits held in trust -- funded 1191 Tenant security deposits............................. 21,457 Prepaid expenses 1240 Property insurance................................... 13,246 1250 Mortgage insurance................................... 8,057 ---------- Total prepaid expenses............................ 21,303 Restricted deposits and funded reserves 1310 Mortgage escrow deposits............................. 75,475 1320 Reserve for replacements............................. 79,997 1323 Paint reserve........................................ 246,022 ---------- Total deposits.................................... 401,494 Fixed assets, at cost (Notes 1 and 2) 1410 Land................................................. $ 211,500 1420 Building............................................. 5,237,890 ----------- 5,449,390 Less accumulated depreciation............................... (3,469,271) 1,980,119 ----------- Other assets 1910 Partnership cash..................................... 118,761 ---------- $2,609,555 ========== LIABILITIES AND PARTNERS' EQUITY Current liabilities 2110 Accounts payable..................................... $ 13,943 2130 Accrued interest -- mortgage......................... 13,838 2320 Mortgage payable, current portion (Note 2)........... 75,615 ---------- Total current liabilities......................... 103,396 Deposit and prepayment liabilities 2191 Tenant security deposits............................. 21,457 2210 Rent received in advance............................. 1,234 ---------- Total deposit and prepayment liabilities.......... 22,691 Long-Term Liabilities 2320 Mortgage payable (Note 2)............................ 2,301,701 Less current portion................................... (75,615) ---------- Total long-term liabilities....................... 2,226,086 ---------- Total liabilities................................. 2,352,173 3130 Partners' equity..................................... 257,382 ---------- $2,609,555 ==========
See accompanying notes. F-6 3535 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS YEAR ENDED DECEMBER 31, 1997 PART I
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- ---------- Rental Income 5100 Apartments or Member Carrying Charges (Coops)............. 5120 $1,734,180 Tenant Assistance Payments................................ 5121 Furniture and Equipment................................... 5130 Stores and Commercial..................................... 5140 Garage and Parking Spaces................................. 5170 Flexible Subsidy Income................................... 5180 Miscellaneous (specify) Rent increases not implemented.... 5190 (72,130) ---------- Total Rent Revenue Potential at 100% Occupancy.... 1,662,050 Vacancies 5200 Apartments................................................ 5220 (142,075) Furniture and Equipment................................... 5230 Stores and Commercial..................................... 5240 Garage and Parking Spaces................................. 5270 Miscellaneous (specify)................................... 5290 ---------- Total Vacancies................................... (142,075) ---------- Net Rental Revenue Rent Revenue Less Vacancies.... 1,519,975 Elderly and Congregate Services Income 5300 ---------- Total Service Income (Schedule Attached).......... 5300 -- Financial Revenue 5400 Interest Income -- Project Operations..................... 5410 Income from Investments -- Residual Receipts.............. 5430 Income from Investments -- Reserve for Replacement........ 5440 Income from Investments -- Miscellaneous*................. 5490 11,755 ---------- Total Financial Revenue........................... 11,755 Other Revenue 5900 Laundry and Vending....................................... 5910 27,178 NSF and Late Charges...................................... 5920 14,271 Damages and Cleaning Fees................................. 5930 11,084 Forfeited Tenant Security Deposits........................ 5940 712 Other Revenues (specify).................................. 5990 13,834 ---------- Total Other Revenue............................... 67,079 ---------- Total Revenue..................................... $1,598,809 ==========
F-7 3536 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1997
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- ---------- Administrative Expenses 6200/6300 Advertising............................................... 6210 $ 22,174 Other Administrative Expense.............................. 6250 14,683 Office Salaries........................................... 6310 18,287 Office Supplies........................................... 6311 13,221 Office or Model Apartment Rent............................ 6312 7,210 Management Fee............................................ 6320 112,600 Manager or Superintendent Salaries........................ 6330 24,201 Manager or Superintendent Rent Free Unit.................. 6331 24,340 Legal Expenses (Project).................................. 6340 12 Auditing Expenses (Project)............................... 6350 6,050 Bookkeeping Fees/Accounting Services...................... 6351 14,628 Telephone and Answering Service........................... 6360 4,663 Bad Debts................................................. 6370 30,555 Miscellaneous Administrative Expenses (specify)**......... 6390 11,791 ---------- Total Administrative Expenses..................... 304,415 Utilities Expense 6400 Fuel Oil/Coal............................................. 6420 Electricity (Light and Misc. Power)....................... 6450 21,924 Water..................................................... 6451 32,800 Gas....................................................... 6452 1,588 Sewer..................................................... 6453 51,717 ---------- Total Utilities Expense........................... 108,029
F-8 3537 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1997
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- ---------- Operating and Maintenance Expenses 6500 Janitor and Cleaning Payroll.............................. 6510 Janitor and Cleaning Supplies............................. 6515 $ 10 Janitor and Cleaning Contract............................. 6517 8,215 Exterminating Payroll/Contract............................ 6519 2,583 Exterminating Supplies.................................... 6520 Garbage and Trash Removal................................. 6525 17,656 Security Payroll/Contract................................. 6530 Grounds Payroll........................................... 6535 Grounds Supplies.......................................... 6536 3,900 Grounds Contract.......................................... 6537 36,713 Repairs Payroll........................................... 6540 68,962 Repairs Material.......................................... 6541 25,116 Repairs Contract.......................................... 6542 33,822 Elevator Maintenance/Contract............................. 6545 Heating/Cooling Repairs and Maintenance................... 6546 7,295 Swimming Pool Maintenance/Contract........................ 6547 1,999 Snow Removal.............................................. 6548 172 Decorating Payroll/Contract............................... 6560 30,619 Decorating Supplies....................................... 6561 4,717 Other..................................................... 6570 Miscellaneous Operating & Maintenance Exp.***............. 6590 1,760 ---------- Total Operating & Maintenance Expenses............ 243,549 Taxes and Insurance 6700 Real Estate Taxes......................................... 6710 98,864 Payroll Taxes (FICA)...................................... 6711 10,060 Miscellaneous Taxes, Licenses and Permits................. 6719 1,294 Property and Liability Insurance (Hazard)................. 6720 36,948 Fidelity Bond Insurance................................... 6721 Workmen's Compensation.................................... 6722 7,672 Health Insurance & Other Employee Benefits................ 6723 7,137 Other Insurance (specify)................................. 6729 ---------- Total Taxes and Insurance......................... 161,975 Financial Expenses 6800 Interest on Bonds Payable................................. 6810 Interest on Mortgage Payable.............................. 6820 163,821 Interest on Notes Payable (Long-Term)..................... 6830 Interest on Notes Payable (Short-Term).................... 6840 Mortgage Insurance Premium/Service Charge................. 6850 11,355 Miscellaneous Financial Expenses.......................... 6890 ---------- Total Financial Expenses.......................... 175,176
F-9 3538 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1997
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- ---------- Elderly & Congregate Service Expenses 6900 Total Service Expenses -- Schedule Attached....... 6900 ---------- Total Cost of Operations Before Depreciation...... $ 993,144 ---------- Profit (Loss) Before Depreciation................. 605,665 Depreciation (Total) -- 6600 (specify).................... 6600 (181,171) ---------- Operating Profit or (Loss)........................ 424,494 Corporate or Mortgagor Entity Expenses 7100 Officer Salaries.......................................... 7110 Legal Expenses (Entity)................................... 7120 Taxes (Federal-State-Entity).............................. 7130-32 Other Expenses (Entity) General partners fees and expenses............................................... 7190 8,000 ---------- Total Corporate Expenses.......................... 8,000 ---------- Net Profit or (Loss).............................. $ 416,494 ==========
- --------------- * Savings account interest...... $ 7,341 Partnership cash interest..... 4,414 ------- $11,755 ======= ** Ad valorem tax service........ $ 300 Furniture expense............. 4,128 Computer expense.............. 2,615 Training and travel........... 4,748 ------- $11,791 ======= *** Vehicle maintenance........... $ 1,137 Fire protection............... 623 ------- $ 1,760 =======
Miscellaneous or other Income and Expense Sub-account Groups. If miscellaneous or other income and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. PART II 1. Total Principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under the mortgage........................... $70,520 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived............................. $13,300 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss Statement.......... N/A 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement................................... N/A
See accompanying notes. F-10 3539 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF CHANGES IN DEFICIT/EQUITY YEAR ENDED DECEMBER 31, 1997 (Deficit) at December 31, 1996.............................. $(122,780) Net income.................................................. 416,494 Distributions............................................... (36,332) --------- Equity at December 31, 1997................................. $ 257,382 =========
See accompanying notes. F-11 3540 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 Source of Funds Operations: Revenue: Rental income........................................... $1,451,247 Other: Legal and late fees................................... $ 14,271 Laundry income........................................ 27,178 Cleaning and damage................................... 11,084 Deposits forfeited.................................... 14,546 Interest income....................................... 11,755 78,834 -------- ---------- 1,530,081 Expenses: Administrative expenses................................. 72,594 Management fee.......................................... 112,600 Bookkeeper fee.......................................... 18,768 Operating expenses...................................... 109,526 Payrolls................................................ 111,450 Maintenance fees........................................ 174,587 Taxes -- payroll........................................ 10,060 Taxes -- real estate.................................... 98,864 Taxes -- miscellaneous.................................. 1,294 Property insurance...................................... 37,944 Workmen's compensation.................................. 7,672 Health insurance........................................ 7,137 Interest on mortgage note............................... 163,821 Mortgage insurance premium.............................. 11,553 Entity expenses......................................... 8,000 945,870 -------- ---------- Net cash provided by operating activities................... 584,211 Investing activities Change in partnership cash.................................. (4,474) Change in restricted deposits and funded reserves........... (73,702) Purchase of fixed assets, including $69,679 of additions capitalized and in accounts payable in the prior year..... (390,712) ---------- Net cash (used) for investing activities.................... (468,888) Financing activities Distributions............................................... $ (36,332) Reduction of long-term debt................................. (70,520) ---------- Net cash (used) for financing activities.................... (106,852) ---------- Increase in unrestricted cash............................... 8,471 Unrestricted cash at December 31, 1996...................... 47,114 ---------- Unrestricted cash at December 31, 1997...................... $ 55,585 ========== Operating activities Net income.................................................. $ 416,494 Adjustments to adjust net income to net cash provided by operating activities: Depreciation.............................................. 181,171 Changes in operating assets and liabilities: Prepaid expenses........................................ (1,194) Deposits held in trust.................................. 2,400 Tenant accounts receivable.............................. (7,049) Accounts payable........................................ (1,497) Bookkeeper fee payable.................................. (4,140) Rent received in advance................................ 426 Tenant security deposits................................ (2,400) ---------- Net cash provided by operating activities................... $ 584,211 ==========
See accompanying notes. F-12 3541 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership is organized as a limited partnership formed to acquire an interest in real property located in Durham, North Carolina and to operate thereon an apartment complex of 230 units, under Section 221(d)4 of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Depreciation is computed principally by the straight-line and accelerated methods over estimated useful lives of 3 to 40 years. Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents except for imprest balances of petty cash. Income Taxes Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. Management Agreement The Partnership pays management fees equal to 7.5 percent of gross collections to Insignia Residential Group. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. LONG-TERM DEBT A mortgage note is payable in monthly installments of $19,528 until August 2014, including interest at 7%, to USGI, Inc. The note is collateralized by pledge of land and buildings and, in addition, is insured by HUD. The note was confirmed in writing to our independent public accountants. Principal maturities for the next five years are as follows: 1998...................................................... $75,615 1999...................................................... 81,080 2000...................................................... 86,946 2001...................................................... 93,232 2002...................................................... 99,971
During the year, the Partnership incurred net interest costs on the mortgage note of $163,821 and paid net interest costs of $163,821. F-13 3542 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. RELATED PARTY TRANSACTIONS Transactions with affiliates of the general partners are summarized as follows:
RELATED PARTY TYPE OF TRANSACTION AMOUNT - ------------- ------------------- -------- Insignia Residential Group Management fee $112,600 Insignia Residential Group Bookkeeper fee 14,628 AmReal Corporation General partner fees and expenses 8,000
4. FIXED ASSETS AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ -------- ----------- ------------- Shannon Manor Apartments................. $2,301,701 $211,500 $3,175,539 $2,062,351 ========== ======== ========== ==========
GROSS AMOUNT AT WHICH CARRIED
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS ----------- -------- ----------- ---------- ------------ -------- ------------- Shannon Manor........... $211,500 $5,237,890 $5,449,390 $3,469,271 7/74 3-40 ======== ========== ========== ==========
Reconciliation of "Fixed Assets and Accumulated Depreciation": FIXED ASSETS Balance at beginning of year................................ $5,128,357 Property improvements....................................... 321,033 ---------- Balance at end of year...................................... $5,449,390 ========== ACCUMULATED DEPRECIATION Balance at beginning of year................................ $3,288,100 Additions charged to expense................................ 181,171 ---------- Balance at end of year...................................... $3,469,271 ==========
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $5,724,465. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $3,927,037. F-14 3543 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-15 3544 REPORT OF INDEPENDENT AUDITORS The General Partners Shannon Manor Apartments, A Limited Partnership We have audited the accompanying balance sheet of Shannon Manor Apartments, A Limited Partnership (FHA Project No. 053-35064-PM) as of December 31, 1996 and the related statements of profit and loss, changes in deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shannon Manor Apartments, A Limited Partnership at December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 10, 1997 Greenville, South Carolina F-16 3545 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM BALANCE SHEET DECEMBER 31, 1996 ASSETS Current assets 1110 Petty cash........................................... $ 300 1120 Unrestricted cash.................................... 47,114 1130 Tenant accounts receivable........................... 3,487 ----------- Total current assets.............................. 50,901 Deposits held in trust -- funded 1191 Tenant security deposits............................. 23,857 Prepaid expenses 1240 Property insurance................................... 12,250 1250 Mortgage insurance................................... 7,859 ----------- Total prepaid expenses............................ 20,109 Restricted deposits and funded reserves 1310 Mortgage escrow deposits............................. 72,495 1320 Reserve for replacements............................. 66,697 1323 Paint reserve........................................ 188,600 ----------- Total deposits.................................... 327,792 Fixed assets, at cost (Notes 1 and 2) 1410 Land................................................. $ 211,500 1420 Building............................................. 4,916,857 ----------- 5,128,357 Less accumulated depreciation............................... (3,288,100) 1,840,257 ----------- Other assets 1910 Partnership cash..................................... 114,287 ----------- $ 2,377,203 =========== LIABILITIES AND PARTNERS' DEFICIT Current liabilities 2110 Accounts payable..................................... $ 85,119 2130 Accrued interest -- mortgage......................... 13,838 2190 Bookkeeper fee payable............................... 4,140 2320 Mortgage payable, current portion (Note 2)........... 70,520 ----------- Total current liabilities......................... 173,617 Deposit and prepayment liabilities 2191 Tenant security deposits............................. 23,857 2210 Rent received in advance............................. 808 ----------- Total deposit and prepayment liabilities.......... 24,665 Long-term liabilities 2320 Mortgage payable (Note 2)............................ 2,372,221 Less current portion................................... (70,520) ----------- Total long-term liabilities....................... 2,301,701 ----------- Total liabilities................................. 2,499,983 3130 Partners' (deficit).................................... (122,780) ----------- $ 2,377,203 ===========
See accompanying notes. F-17 3546 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS YEAR ENDED DECEMBER 31, 1996 PART I
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- ---------- Rental Income 5100 Apartments or Member Carrying Charges (Coops)............. 5120 $1,637,340 Tenant Assistance Payments................................ 5121 Furniture and Equipment................................... 5130 Stores and Commercial..................................... 5140 Garage and Parking Spaces................................. 5170 Flexible Subsidy Income................................... 5180 Miscellaneous (specify) -- Rent increases not implemented............................................ 5190 (93,721) ---------- Total Rent Revenue Potential at 100% Occupancy.... 1,543,619 Vacancies 5200 Apartments................................................ 5220 (74,874) Furniture and Equipment................................... 5230 Stores and Commercial..................................... 5240 Garage and Parking Spaces................................. 5270 Miscellaneous (specify)................................... 5290 ---------- Total Vacancies................................... (74,874) ---------- Net Rental Revenue Rent Revenue Less Vacancies.... 1,468,745 Elderly and Congregate Services Income 5300 ---------- Total Service Income (Schedule Attached).......... 5300 -- Financial Revenue 5400 Interest Income -- Project Operations..................... 5410 629 Income from Investments -- Residual Receipts.............. 5430 Income from Investments -- Reserve for Replacement........ 5440 1,368 Income from Investments -- Miscellaneous*................. 5490 15,553 ---------- Total Financial Revenue........................... 17,550 Other Revenue 5900 Laundry and Vending....................................... 5910 9,012 NSF and Late Charges...................................... 5920 10,061 Damages and Cleaning Fees................................. 5930 7,219 Forfeited Tenant Security Deposits........................ 5940 628 Other Revenue (specify)**................................. 5990 9,769 ---------- Total Other Revenue............................... 36,689 ---------- Total Revenue..................................... $1,522,984 ==========
F-18 3547 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1996
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- ---------- Administrative Expenses 6200/6300 Advertising............................................... 6210 $ 18,879 Other Administrative Expense.............................. 6250 11,168 Office Salaries........................................... 6310 21,751 Office Supplies........................................... 6311 15,098 Office or Model Apartment Rent............................ 6312 6,690 Management Fee............................................ 6320 108,745 Manager or Superintendent Salaries........................ 6330 26,550 Manager or Superintendent Rent Free Unit.................. 6331 14,974 Legal Expenses (Project).................................. 6340 190 Auditing Expenses (Project)............................... 6350 7,150 Bookkeeping Fees/Accounting Services...................... 6351 11,040 Telephone and Answering Service........................... 6360 5,394 Bad Debts................................................. 6370 20,932 Miscellaneous Administrative Expenses (specify)***........ 6390 11,131 ---------- Total Administrative Expenses..................... 279,692 Utilities Expense 6400 Fuel Oil/Coal............................................. 6420 Electricity (Light and Misc. Power)....................... 6450 17,251 Water..................................................... 6451 31,161 Gas....................................................... 6452 2,155 Sewer..................................................... 6453 47,955 ---------- Total Utilities Expense........................... 98,522
F-19 3548 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1996
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- ---------- Operating and Maintenance Expenses 6500 Janitor and Cleaning Payroll.............................. 6510 Janitor and Cleaning Supplies............................. 6515 Janitor and Cleaning Contract............................. 6517 $ 10,219 Exterminating Payroll/Contract............................ 6519 2,921 Exterminating Supplies.................................... 6520 Garbage and Trash Removal................................. 6525 3,719 Security Payroll/Contract................................. 6530 Grounds Payroll........................................... 6535 Grounds Supplies.......................................... 6536 1,716 Grounds Contract.......................................... 6537 35,395 Repairs Payroll........................................... 6540 65,464 Repairs Material.......................................... 6541 22,988 Repairs Contract.......................................... 6542 53,305 Elevator Maintenance/Contract............................. 6545 Heating/Cooling Repairs and Maintenance................... 6546 10,888 Swimming Pool Maintenance/Contract........................ 6547 1,742 Snow Removal.............................................. 6548 247 Decorating Payroll/Contract............................... 6560 29,243 Decorating Supplies....................................... 6561 6,942 Other..................................................... 6570 Miscellaneous Operating & Maintenance Exp.****............ 6590 1,034 ---------- Total Operating & Maintenance Expenses............ 245,823 Taxes and Insurance 6700 Real Estate Taxes......................................... 6710 99,039 Payroll Taxes (FICA)...................................... 6711 8,951 Miscellaneous Taxes, Licenses and Permits................. 6719 Property and Liability Insurance (Hazard)................. 6720 35,981 Fidelity Bond Insurance................................... 6721 314 Workmen's Compensation.................................... 6722 8,050 Health Insurance & Other Employee Benefits................ 6723 4,863 Other Insurance (specify)................................. 6729 ---------- Total Taxes and Insurance......................... 157,198 Financial Expenses 6800 Interest on Bonds Payable................................. 6810 Interest on Mortgage Payable.............................. 6820 168,192 Interest on Notes Payable (Long-Term)..................... 6830 Interest on Notes Payable (Short-Term).................... 6840 Mortgage Insurance Premium/Service Charge................. 6850 12,005 Miscellaneous Financial Expenses -- Loss on disposal of fixed assets........................................... 6890 6,035 ---------- Total Financial Expenses.......................... 186,232
F-20 3549 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1996
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- ---------- Elderly & Congregate Service Expenses 6900 Total Service Expenses -- Schedule Attached....... 6900 ---------- Total Cost of Operations Before Depreciation...... $ 967,467 ---------- Profit (Loss) Before Depreciation................. 555,517 Depreciation (Total) -- 6600 (specify).................... 6600 (136,731) ---------- Operating Profit or (Loss)........................ 418,786 Corporate or Mortgagor Entity Expenses 7100 Officer Salaries.......................................... 7110 Legal Expenses (Entity)................................... 7120 Taxes (Federal-State-Entity).............................. 7130-32 Other Expenses (Entity) -- General partners fees and expenses............................................... 7190 7,500 ---------- Total Corporate Expenses.......................... 7,500 ---------- Net Profit or (Loss).............................. $ 411,286 ==========
- --------------- * Savings account interest...... $ 2,428 Partnership cash interest..... 3,459 Paint reserve interest........ 9,666 ------- $15,553 ======= ** Pet fees...................... $ 575 Lease cancellation fees....... 3,574 Application fees.............. 4,875 Clubhouse rental.............. 745 ------- $ 9,769 ======= *** Furniture expense............. $ 3,547 Computer expense.............. 1,990 Training and travel........... 5,594 ------- $11,131 ======= **** Vehicle maintenance........... $ 585 Fire protection............... 449 ------- $ 1,034 =======
Miscellaneous or other Income and Expense Sub-account Groups. If miscellaneous or other income and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. PART II 1. Total Principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under the mortgage........................... $65,766 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived............................. $13,296 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss Statement.......... N/A 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement................................... N/A
See accompanying notes. F-21 3550 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF CHANGES IN DEFICIT YEAR ENDED DECEMBER 31, 1996 (Deficit) at December 31, 1995.............................. $(511,318) Net income.................................................. 411,286 Distributions............................................... (22,748) --------- (Deficit) at December 31, 1996.............................. $(122,780) =========
See accompanying notes. F-22 3551 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 Source of Funds Operations: Revenue: Rental income........................................... $1,424,142 Other: Legal and late fees................................... $ 10,061 Laundry income........................................ 9,012 Cleaning and damage................................... 7,219 Deposits forfeited.................................... 10,397 Interest income....................................... 17,550 54,239 -------- ---------- 1,478,381 Expenses: Administrative expenses................................. 69,010 Management fee.......................................... 108,745 Bookkeeper fee.......................................... 6,900 Operating expenses...................................... 84,165 Payrolls................................................ 113,765 Maintenance fees........................................ 180,359 Taxes -- payroll........................................ 8,951 Taxes -- real estate.................................... 99,039 Property insurance...................................... 37,526 Fidelity bond........................................... 314 Workmen's compensation.................................. 8,050 Health insurance........................................ 4,863 Interest on mortgage note............................... 168,576 Mortgage insurance premium.............................. 11,789 Entity expenses......................................... 7,500 909,552 -------- ---------- Net cash provided by operating activities................... 568,829 Investing activities Change in partnership cash.................................. (73,140) Change in restricted deposits and funded reserves........... 137,956 Purchase of fixed assets, less $69,679 of additions in accounts payable at year-end.............................. (637,929) ---------- Net cash (used) for investing activities.................... (573,113) Financing activities Distributions............................................... $ (22,748) Reduction of long-term debt................................. (65,766) ---------- Net cash (used) for financing activities.................... (88,514) ---------- (Decrease) in unrestricted cash............................. (92,798) Unrestricted cash at December 31, 1995...................... 139,912 ---------- Unrestricted cash at December 31, 1996...................... $ 47,114 ========== Operating activities Net income.................................................. $ 411,286 Adjustments to adjust net income to net cash provided by operating activities: Depreciation.............................................. 136,731 Loss on disposal.......................................... 6,035 Changes in operating assets and liabilities: Prepaid expenses........................................ (1,329) Deposits held in trust.................................. 1,775 Tenant accounts receivable.............................. 3,338 Accounts receivable -- other............................ 14,354 Accounts payable........................................ 3 Bookkeeper fee payable.................................. 4,140 Rent received in advance................................ (5,345) Accrued interest -- mortgage............................ (384) Tenant security deposits................................ (1,775) ---------- Net cash provided by operating activities................... $ 568,829 ==========
See accompanying notes. F-23 3552 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership is organized as a limited partnership formed to acquire an interest in real property located in Durham, North Carolina and to operate thereon an apartment complex of 230 units, under Section 221(d)4 of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Depreciation is computed principally by the straight-line and accelerated methods over estimated useful lives of 3 to 40 years. Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents except for imprest balances of petty cash. Income Taxes Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. Management Agreement The Partnership pays management fees equal to 7.5 percent of gross collections to Insignia Management Group. Financial Accounting Standards Statement No. 107 Disclosures The carrying amounts reported in the balance sheet, for those financial instruments described in the schedule of funds in financial institutions included in the supporting data required by HUD listed on the contents page, approximate those assets' fair value. Payment of long-term liabilities are generally dependent upon the Partnership's ability to achieve cash flow, the partners providing additional funds, the sale of the project or refinancing of the mortgage at the end of the Regulatory Agreement. Management believes that estimating the fair value of these long-term liabilities is either not appropriate or, because of excess costs, considers estimation of fair value to otherwise be impracticable. Long-Lived Assets During 1996, the Partnership adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which requires impairment losses to be recognized for long-lived assets used in operations when indictors of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of FASB No. 121 did not have a material effect on the Partnership's financial statements. F-24 3553 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. LONG-TERM DEBT A mortgage note is payable in monthly installments of $19,528 until August 2014, including interest at 7%, to USGI, Inc. The note is collateralized by pledge of land and buildings and, in addition, is insured by HUD. The note was confirmed in writing to our independent public accountants. Principal maturities for the next five years are as follows: 1997....................................................... $70,520 1998....................................................... 75,615 1999....................................................... 81,080 2000....................................................... 86,946 2001....................................................... 93,232
During the year, the Partnership incurred net interest costs on the mortgage note of $168,192 and paid net interest costs of $168,576. 3. RELATED PARTY TRANSACTIONS Transactions with affiliates of the general partners are summarized as follows:
RELATED PARTY TYPE OF TRANSACTION AMOUNT - ------------- ------------------- -------- Insignia Management Group Management fee $108,745 Insignia Management Group Bookkeeper fee 11,040 AmReal Corporation General partner fees and expenses 7,500
4. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-25 3554 REPORT OF INDEPENDENT AUDITORS The General Partners Shannon Manor Apartments, A Limited Partnership We have audited the accompanying balance sheet of Shannon Manor Apartments, A Limited Partnership (FHA Project No. 053-35064-PM) as of December 31, 1995 and the related statements of profit and loss, changes in deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shannon Manor Apartments, A Limited Partnership at December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 9, 1996 Greenville, South Carolina F-26 3555 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM BALANCE SHEET DECEMBER 31, 1995 ASSETS Current assets 1110 Petty cash........................................... $ 300 1120 Unrestricted cash.................................... 139,912 1130 Tenant accounts receivable........................... 6,825 1140 Accounts receivable -- other......................... 14,354 ---------- Total current assets.............................. 161,391 Deposits held in trust-funded 1191 Tenant security deposits............................. 25,632 Prepaid expenses 1240 Property insurance................................... 10,705 1250 Mortgage insurance................................... 8,075 ---------- Total prepaid expenses............................ 18,780 Restricted deposits and funded reserves 1310 Mortgage escrow deposits............................. 91,463 1320 Reserve for replacements............................. 52,033 1323 Paint reserve........................................ 322,252 ---------- Total deposits.................................... 465,748 Fixed assets, at cost (Notes 1 and 2) 1410 Land................................................. $ 211,500 1420 Building............................................. 4,219,294 ----------- 4,430,794 Less accumulated depreciation............................. (3,155,379) 1,275,415 ----------- Other assets 1910 Partnership cash..................................... 41,147 ---------- $1,988,113 ========== LIABILITIES AND PARTNERS' DEFICIT Current liabilities 2110 Accounts payable..................................... $ 15,437 2130 Accrued interest -- mortgage......................... 14,222 2320 Mortgage payable, current portion (Note 2)........... 65,766 ---------- Total current liabilities......................... 95,425 Deposit and prepayment liabilities 2191 Tenant security deposits............................. 25,632 2210 Rent received in advance............................. 6,153 ---------- Total deposit and prepayment liabilities.......... 31,785 Long-term liabilities 2320 Mortgage payable (Note 2)............................ 2,437,987 Less current portion................................ (65,766) ---------- Total long-term liabilities....................... 2,372,221 ---------- Total liabilities................................. 2,499,431 3130 Partners' (deficit).................................... (511,318) ---------- $1,988,113 ==========
See accompanying notes. F-27 3556 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS YEAR ENDED DECEMBER 31, 1995 PART I
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- ---------- Rental Income 5100 Apartments or Member Carrying Charges (Coops)............. 5120 $1,483,630 Tenant Assistance Payments................................ 5121 Furniture and Equipment................................... 5130 Stores and Commercial..................................... 5140 Garage and Parking Spaces................................. 5170 Flexible Subsidy Income................................... 5180 Miscellaneous (specify) Rent increases not implemented.... 5190 (51,729) ---------- Total Rent Revenue Potential at 100% Occupancy.... 1,431,901 Vacancies 5200 Apartments................................................ 5220 (50,260) Furniture and Equipment................................... 5230 Stores and Commercial..................................... 5240 Garage and Parking Spaces................................. 5270 Miscellaneous (specify)................................... 5290 ---------- Total Vacancies................................... (50,260) ---------- Net Rental Revenue Rent Revenue Less Vacancies.... 1,381,641 Elderly and Congregate Services Income 5300 ---------- Total Service Income (Schedule Attached).......... 5300 Financial Revenue 5400 Interest Income -- Project Operations..................... 5410 Income from Investments -- Residual Receipts.............. 5430 Income from Investments -- Reserve for Replacement........ 5440 Income from Investments -- Miscellaneous*................. 5490 14,256 ---------- Total Financial Revenue........................... 14,256 Other Revenue 5900 Laundry and Vending....................................... 5910 8,812 NSF and Late Charges...................................... 5920 12,043 Damages and Cleaning Fees................................. 5930 10,340 Forfeited Tenant Security Deposits........................ 5940 400 Other Revenues (specify)**................................ 5990 24,858 ---------- Total Other Revenue............................... 56,453 ---------- Total Revenue..................................... $1,452,350 ==========
F-28 3557 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1995
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- ---------- Administrative Expenses 6200/6300 Advertising............................................... 6210 $ 12,931 Other Administrative Expense.............................. 6250 7,137 Office Salaries........................................... 6310 21,881 Office Supplies........................................... 6311 13,650 Office or Model Apartment Rent............................ 6312 5,760 Management Fee............................................ 6320 103,821 Manager or Superintendent Salaries........................ 6330 25,164 Manager or Superintendent Rent Free Unit.................. 6331 22,099 Legal Expenses (Project).................................. 6340 357 Auditing Expenses (Project)............................... 6350 6,600 Bookkeeping Fees/Accounting Services...................... 6351 6,900 Telephone and Answering Service........................... 6360 5,483 Bad Debts................................................. 6370 23,479 Miscellaneous Administrative Expenses (specify)***........ 6390 12,195 ---------- Total Administrative Expenses..................... 267,457 Utilities Expense 6400 Fuel Oil/Coal............................................. 6420 Electricity (Light and Misc. Power)....................... 6450 16,238 Water..................................................... 6451 46,057 Gas....................................................... 6452 1,327 Sewer..................................................... 6453 72,335 ---------- Total Utilities Expense........................... 135,957
F-29 3558 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1995
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- ---------- Operating and Maintenance Expenses 6500 Janitor and Cleaning Payroll.............................. 6510 Janitor and Cleaning Supplies............................. 6515 Janitor and Cleaning Contract............................. 6517 $ 8,275 Exterminating Payroll/Contract............................ 6519 Exterminating Supplies.................................... 6520 1,833 Garbage and Trash Removal................................. 6525 3,257 Security Payroll/Contract................................. 6530 Grounds Payroll........................................... 6535 Grounds Supplies.......................................... 6536 973 Grounds Contract.......................................... 6537 58,350 Repairs Payroll........................................... 6540 54,601 Repairs Material.......................................... 6541 23,239 Repairs Contract.......................................... 6542 13,155 Elevator Maintenance/Contract............................. 6545 Heating/Cooling Repairs and Maintenance................... 6546 4,200 Swimming Pool Maintenance/Contract........................ 6547 1,265 Snow Removal.............................................. 6548 140 Decorating Payroll/Contract............................... 6560 28,407 Decorating Supplies....................................... 6561 7,349 Other..................................................... 6570 Miscellaneous Operating & Maintenance Exp.****............ 6590 3,322 ---------- Total Operating & Maintenance Expenses............ 208,366 Taxes and Insurance 6700 Real Estate Taxes......................................... 6710 81,881 Payroll Taxes (FICA)...................................... 6711 8,207 Miscellaneous Taxes, Licenses and Permits................. 6719 100 Property and Liability Insurance (Hazard)................. 6720 33,551 Fidelity Bond Insurance................................... 6721 186 Workmen's Compensation.................................... 6722 8,883 Health Insurance & Other Employee Benefits................ 6723 6,420 Other Insurance (specify)................................. 6729 ---------- Total Taxes and Insurance......................... 139,228 Financial Expenses 6800 Interest on Bonds Payable................................. 6810 Interest on Mortgage Payable.............................. 6820 172,652 Interest on Notes Payable (Long-Term)..................... 6830 Interest on Notes Payable (Short-Term).................... 6840 Mortgage Insurance Premium/Service Charge................. 6850 13,373 Miscellaneous Financial Expenses.......................... 6890 ---------- Total Financial Expenses.......................... 186,025
F-30 3559 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF PROFIT AND LOSS -- (CONTINUED) YEAR ENDED DECEMBER 31, 1995
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT ---------------------- --------- ---------- Elderly & Congregate Service Expenses 6900 Total Service Expenses -- Schedule Attached....... 6900 ---------- Total Cost of Operations Before Depreciation...... $ 937,033 ---------- Profit (Loss) Before Depreciation................. 515,317 Depreciation (Total) -- 6600 (specify).................... 6600 105,282 ---------- Operating Profit or (Loss)........................ 410,035 Corporate or Mortgagor Entity Expenses 7100 Officer Salaries.......................................... 7110 Legal Expenses (Entity)................................... 7120 Taxes (Federal-State-Entity).............................. 7130-32 Other Expenses (Entity)................................... 7190 6,653 ---------- Total Corporate Expenses.......................... 6,653 ---------- Net Profit or (Loss).............................. $ 403,382 ==========
- --------------- * Savings account interest...... $ 3,141 Security deposit interest..... 705 Partnership cash interest..... 2,279 Paint reserve interest........ 8,131 ------- $14,256 ======= ** Furniture..................... $ 3,089 Pet fees...................... 950 Lease cancellation............ 14,483 Application fees.............. 5,400 Clubhouse rentals............. 430 Miscellaneous................. 506 ------- $24,858 ======= *** Ad valorem tax service........ $ 863 Training and travel........... 7,770 Miscellaneous................. 3,562 ------- $12,195 ======= **** Vehicle maintenance........... $ 860 Fire protection............... 2,462 ------- $ 3,322 =======
Miscellaneous or other Income and Expense Sub-account Groups. If miscellaneous or other income and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. PART II 1. Total Principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under the mortgage........................... $61,332 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived............................. $13,300 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss Statement.......... $ 0 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement................................... $ N/A
See accompanying notes. F-31 3560 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF CHANGES IN DEFICIT YEAR ENDED DECEMBER 31, 1995 (Deficit) at December 31, 1994.............................. $(746,319) Net income.................................................. 403,382 Distributions............................................... (168,381) --------- (Deficit) at December 31, 1995.............................. $(511,318) =========
See accompanying notes. F-32 3561 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1995 Source of Funds Operations: Revenue: Rental income........................................... $1,325,966 Other: Laundry income........................................ $ 8,812 Legal and late fees................................... 12,043 Cleaning and damage charges........................... 10,340 Interest income....................................... 14,256 Deposits forfeited.................................... 400 Other revenue......................................... 24,367 70,218 -------- ---------- 1,396,184 Expenses: Administrative expenses................................. 66,280 Management fee.......................................... 103,821 Bookkeeper fee.......................................... 6,900 Operating expenses...................................... 138,780 Payrolls................................................ 96,797 Maintenance expenses.................................... 153,763 Taxes -- payroll........................................ 8,207 Taxes -- real estate.................................... 81,881 Taxes -- miscellaneous.................................. 100 Property insurance...................................... 33,846 Health insurance........................................ 6,420 Fidelity bond........................................... 187 Workmen's compensation.................................. 8,884 Interest on mortgage note............................... 173,009 Mortgage insurance premium.............................. 12,123 Entity expenses......................................... 6,653 897,651 -------- ---------- Net cash provided by operating activities................... 498,533 Investing activities Change in partnership cash.................................. (14,864) Change in restricted deposits and funded reserves........... (158,504) Purchase of fixed assets.................................... (169,417) Tenant security deposits.................................... 1,994 Deposits held in trust...................................... (1,879) ---------- Net cash (used) for investing activities.................... (342,670) Financing activities Distributions............................................... $ (168,381) Reduction of long-term debt................................. (61,332) ---------- Net cash (used) for investing activities.................... (229,713) ---------- (Decrease) in unrestricted cash............................. (73,850) Unrestricted cash at December 31, 1994...................... 213,762 ---------- Unrestricted cash at December 31, 1995...................... $ 139,912 ========== Operating activities Net income.................................................. $ 403,382 Adjustments to adjust net income to net cash provided by operating activities: Depreciation............................................ 105,282 Changes in operating assets and liabilities: Prepaid expenses...................................... 955 Tenant accounts receivable............................ (6,825) Accounts receivable -- other.......................... (13,554) Accounts payable...................................... 10,731 Rent received in advance.............................. 1,996 Accrued interest -- mortgage.......................... (357) Accrued expenses -- other............................. (3,077) ---------- Net cash provided by operating activities................... $ 498,533 ==========
See accompanying notes. F-33 3562 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 1. SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership is organized as a limited partnership formed to acquire an interest in real property located in Durham, North Carolina and to operate thereon an apartment complex of 230 units, under Section 221(d)4 of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Depreciation is computed principally by the straight-line and accelerated methods over estimated useful lives of 3 to 40 years. Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents except for imprest balances of petty cash. Income Taxes Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. Management Agreement The Partnership pays management fees equal to 7.5 percent of gross collections to a wholly-owned subsidiary of Insignia Financial Group, Inc. Financial Accounting Standards Statement No. 107 Disclosures The carrying amounts reported in the balance sheet, for those financial instruments described in the schedule of funds in financial institutions included in the supporting data required by HUD listed on the contents page, approximate those assets' fair value. Payment of long-term liabilities are generally dependent upon the Partnership's ability to achieve cash flow, the partners providing additional funds, the sale of the project or refinancing of the mortgage at the end of the Regulatory Agreement. Management believes that estimating the fair value of these long-term liabilities is either not appropriate or, because of excess costs, considers estimation of fair value to otherwise be impracticable. 2. LONG-TERM DEBT A mortgage note is payable in monthly installments of $19,528 until August 2014, including interest at 7%, to USGI, Inc. The note is collateralized by pledge of land and buildings and, in addition, is insured by HUD. The note was confirmed in writing to our independent public accountants. Principal maturities for the next five years are as follows: 1996....................................................... $65,766 1997....................................................... 70,520 1998....................................................... 75,615 1999....................................................... 81,080 2000....................................................... 86,946
F-34 3563 SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP FHA PROJECT NO. 053-35064-PM NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) During the year, the Partnership incurred net interest costs on the mortgage note of $172,652 paid net interest costs of $173,009. 3. RELATED PARTY TRANSACTIONS Transactions with affiliates of the general partners are summarized as follows:
RELATED PARTY TYPE OF TRANSACTION AMOUNT - ------------- ------------------- -------- Insignia Management Group Management fee $103,821 Insignia Management Group Bookkeeper fee 6,900 AmReal Corporation General partner fees and expenses 6,653
4. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-35 3564 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 3565 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 3566 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 September , 1998 A-3 3567 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF SHARON WOODS, 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 3568 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 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 Sharon Woods, 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41
PAGE ---- Accounting Treatment......................... S-41 DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-61 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71
i 3569
PAGE ---- YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72 Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-73 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership............. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77
PAGE ---- Distributions and Transfers of Units......... S-77 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 3570 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 Sharon Woods, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 3571 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 3572 - 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 $3,853.93 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 distributions of $ 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 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 3573 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 3574 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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. 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-5 3575 This page intentionally left blank. S-6 3576 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. 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. 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 5 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. 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 S-7 3577 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 3578 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 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 S-9 3579 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 3580 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, 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. 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 S-11 3581 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 2.25% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 3582 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. 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." S-13 3583 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 3584 - 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 also pay all costs and expenses of printing and mailing this Prospectus Supplement and the legal fees and expenses in connection therewith. We will 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 S-15 3585 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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. S-16 3586 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 3587 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 is not subject to such limitations. 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $5,800 annually from your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $78,000 in 1996, $83,000 in 1997 and $42,065 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. S-18 3588 YOUR PARTNERSHIP Your Partnership and its Property. Sharon Woods, L.P. is a Delaware limited partnership which was formed on June 28, 1985 for the purpose of owning and operating a single apartment property located in Sharonville, Ohio, known as "Timber Ridge Apartments." In 1985, it completed a private placement of units that raised net proceeds of approximately $2,889,000. Timber Ridge Apartments consists of 248 apartment units. Your partnership has no employees. Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on July 1, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $5,154,711, payable to FNMA, which bears interest at a rate of 7.83%. The mortgage debt is due in October 2003. Your partnership also has a second mortgage note outstanding of $168,300, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 3589 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 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 3590
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 3591 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 3592
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 3593 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 3594 SUMMARY FINANCIAL INFORMATION OF SHARON WOODS, L.P. The summary financial information of Sharon Woods, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Sharon Woods, 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 of Your Partnership" included herein. See "Index to Financial Statements."
SHARON WOODS, L.P. ---------------------------------------------------------------------------------------- 6/30/98 6/30/97 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (1) (1) (1) (1) (1) (1) (1) OPERATING DATA: Total Revenues....................... $ 809,454 $ 814,896 $1,676,000 $1,588,000 $1,526,281 $1,528,747 $1,185,562 Net Income/(Loss).................... (24,746) 21,245 30,000 (68,000) (125,168) (175,996) (300,102) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation....................... 5,596,103 5,735,676 5,670,000 5,831,000 6,005,632 6,080,439 5,629,285 Total Assets......................... 6,480,061 6,728,244 6,602,000 6,829,000 6,928,781 7,104,077 7,218,782 Mortgage Notes Payable, including Accrued Interest................... 5,259,762 5,319,347 5,296,000 5,353,000 5,404,413 5,451,486 5,494,199 Partners' Capital.................... $1,072,254 $1,281,245 $1,097,000 $1,260,000 $1,328,053 $1,453,221 $1,629,217
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $3,853.93
- --------------- (1) Information prepared on Federal Income Tax Basis. S-25 3595 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. Based on apartment unit data compiled as 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 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 price 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 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. S-26 3596 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 Code. 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 therefore 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 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. 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 S-27 3597 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 year ended December 31, 1997 were $3,853.93 per unit. 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 an 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 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. 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. S-28 3598 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently own a 2.25%% limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 3599 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. S-30 3600 - 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 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 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 3601 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 3602 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 3603 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. 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. S-34 3604 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." 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. 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. S-35 3605 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, (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 9:00 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 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, Denver, Colorado time. S-36 3606 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 3607 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. 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 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 S-38 3608 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 unit holders 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 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 S-39 3609 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. (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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 3610 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. 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. 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-41 3611 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-42 3612 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 payment. 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 OP Units and any such S-43 3613 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-44 3614 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-45 3615 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-46 3616 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-47 3617 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-48 3618 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-49 3619 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 3620 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-51 3621 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 3622 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value, 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-53 3623 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 3624 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 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, a third party expert, 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 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 year ended December 31, 1997 were $3,853.93 per unit. 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 an 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-55 3625 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-56 3626 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. 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-57 3627 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-58 3628 performed a site inspection 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 September 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 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 property was 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 S-59 3629 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. S-60 3630 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 $9,000 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-61 3631 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 under The AIMCO Operating Partnership is organized as a Delaware law for the purpose of owning and managing Delaware limited partnership. The AIMCO Operating Timber Ridge Apartments. 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 receive until December 31, 2093, unless the AIMCO Operating regular cash distributions out of your partnership's Cash Partnership is dissolved sooner pursuant to the terms of Flow (as defined in your partnership's agreement of the AIMCO Operating Partnership's agreement of limited limited partnership). The termination date of your partnership (the "AIMCO Operating Partnership Agreement") partnership is July 1, 2015. or as provided by law. See "Description of 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 and operate The purpose of the AIMCO Operating Partnership is to your partnership's property. Subject to restrictions conduct any business that may be lawfully conducted by a contained in your partnership's agreement of limited limited partnership organized pursuant to the Delaware partnership, your partnership may perform all act Revised Uniform Limited Partnership Act (as amended from necessary or appropriate in connection therewith and time to time, or any successor to such statute) (the reasonably related thereto, including acquiring "Delaware Limited Partnership Act"), provided that such additional real or personal property, borrowing money and business is to be conducted in a manner that permits creating liens. 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-62 3632 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized to The general partner is authorized to issue additional issue additional limited partnership interests in your partnership interests in the AIMCO Operating Partnership partnership and may admit additional limited partners by for any partnership purpose from time to time to the selling not more than 45 units for cash and notes to limited partners and to other persons, and to admit such selected persons who fulfill the requirements set forth other persons as additional limited partners, on terms in your partnership's agreement of limited partnership. and conditions and for such capital contributions as may The capital contribution need not be equal for all be established by the general partner in its sole limited partners and no action or consent is required in discretion. The net capital contribution need not be connection with the admission of any additional limited equal for all OP Unitholders. No action or consent by the partners. 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, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, your partnership may acquire property or funds or other assets to its subsidiaries or other services from, and have other transactions with persons persons in which it has an equity investment, and such who are partners or who are affiliates of partners. Any persons may borrow funds from the AIMCO Operating and all compensation paid to such persons in connection Partnership, on terms and conditions established in the with services performed for your partnership must be sole and absolute discretion of the general partner. To commensurate with that which would be paid to an the extent consistent with the business purpose of the independent person for similar services and all AIMCO Operating Partnership and the permitted activities agreements must be in writing. Your partnership may not of the general partner, the AIMCO Operating Partnership make loans to any partners but the general partner may may transfer assets to joint ventures, limited liability make loans to your partnership; provided that the companies, partnerships, corporations, business trusts or interest and fees received by the general partner in other business entities in which it is or thereby becomes connection with such loans are not in excess of the a participant upon such terms and subject to such condi- amounts which would be charged by an unrelated bank and tions consistent with the AIMCO Operating Partnership the general partner does not receive a finder's or Agreement and applicable law as the general partner, in placement fee or commission. 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 to The AIMCO Operating Partnership Agreement contains no borrow money and issue evidences of indebtedness in restrictions on borrowings, and the general partner has furtherance of your partnership business, whether secured full power and authority to borrow money on behalf of the or unsecured. AIMCO Operating Partnership. The AIMCO Operating 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.
S-63 3633 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 the limited partners to receive, for any proper with a statement of the purpose of such demand and at purpose, the name and address of each limited partner and such OP Unitholder's own expense, to obtain a current the number of units owned by each limited partners. Your list of the name and last known business, residence or partnership furnishes such information to any limited mailing address of the general partner and each other OP partner requesting the same in writing, upon payment of Unitholder. all costs and expenses of your partnership in connection with the preparation and forwarding of such information.
Management Control The overall management and control of your partnership All management powers over the business and affairs of business, activities and operations is vested solely in the AIMCO Operating Partnership are vested in AIMCO-GP, the general partner. The general partners have full, Inc., which is the general partner. No OP Unitholder has exclusive and complete authority and discretion in the any right to participate in or exercise control or management and control of the business, activities and management power over the business and affairs of the operations of your partnership for the purposes stating AIMCO Operating Partnership. The OP Unitholders have the in your partnership's agreement of limited partnership right to vote on certain matters described under and may make all decisions affecting the conduct of the "Comparison of Ownership of Your Units and AIMCO OP business of your partnership. The general partner Units -- Voting Rights" below. The general partner may possesses and may enjoy and exercise all of the rights not be removed by the OP Unitholders with or without and powers of general partner as more particularly cause. provided under applicable law, except to the extent any such rights are limited or restricted by the express In addition to the powers granted a general partner of a provisions of your partnership's agreement of limited limited partnership under applicable law or that are partnership. Limited partners may not take part in the granted to the general partner under any other provision management of the business, affairs and operations of of the AIMCO Operating Partnership Agreement, the general your partnership, transact any business for your partner, subject to the other provisions of the AIMCO partnership, do not have any power, right or authority to Operating Partnership Agreement, has full power and enter into any agreement, execute or sign documents for, authority to do all things deemed necessary or desirable make representation on behalf of nor to otherwise act so by it to conduct the business of the AIMCO Operating as to bind your partnership in any manner. 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 the partnership, the general partner of your partnership and AIMCO Operating Partnership Agreement, the general its affiliates are not liable, responsible or partner is not liable to the AIMCO Operating Partnership accountable, in damages or otherwise to your partner- for losses sustained, liabilities incurred or benefits ship or any limited partner for any acts performed by any not derived as a result of errors in judgment or mistakes of them which are reasonably believed by them to be of fact or law of any act or omission if the general within the scope of the authority conferred on them by partner acted in good faith. The AIMCO Operating your partnership's agreement of limited partnership and Partnership Agreement provides for indemnification of which in good faith, they believed to be in the best AIMCO, or any director or officer of AIMCO (in its interests of your partnership, excepting only acts of capacity as the previous general partner of the AIMCO malfeasance, gross negligence or actual Operating Partnership), the general partner, any officer misrepresentation. In addition, the general partner and or director of general partner or the AIMCO Operating its affiliates are entitled to indemnification by your Partnership and such other persons as the general partner partnership for any and all acts performed by them in the may designate from and against all losses, claims, good faith belief that the act or omission was in the damages, liabilities, joint or several, expenses best interests of your partnership and which are (including legal fees), fines, settlements and other reasonably within the scope of the authority conferred amounts incurred in connection with any actions relating upon them by your partnership's agreement of limited to the operations of the AIMCO Operating Partnership, as partnership or by your partnership, excepting only acts set forth in the AIMCO Operating Partnership Agreement. of malfeasance, gross negligence or actual The Delaware Limited Partnership Act provides that misrepresentation; provided, however, that such indemnity subject to the standards and restrictions, if any, set will be paid out of and only to the extent of partnership forth in its partnership agreement, a limited partnership assets. may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and
S-64 3634 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 has partnership, the limited partners may remove a general exclusive management power over the business and affairs partner for cause and elect a successor general partner of the AIMCO Operating Partnership. The general partner upon a vote of the limited partners owning a majority of may not be removed as general partner of the AIMCO the outstanding units. The general partners may not Operating Partnership by the OP Unitholders with or transfer, assign, sell, withdraw or otherwise dispose of without cause. Under the AIMCO Operating Partnership their interest unless it obtains the prior written Agreement, the general partner may, in its sole consent of those persons owning more than 50% of the discretion, prevent a transferee of an OP Unit from units and satisfies other conditions set forth in your becoming a substituted limited partner pursuant to the partnership's agreement of limited partnership. Such AIMCO Operating Partnership Agreement. The general consent is also necessary for the approval of a new partner may exercise this right of approval to deter, general partner when there is no remaining general delay or hamper attempts by persons to acquire a partner. A limited partner may not transfer his interests controlling interest in the AIMCO Operating Partnership. without the written consent of the general partners which Additionally, the AIMCO Operating Partnership Agreement may be withheld at the sole discretion of the general contains restrictions on the ability of OP Unitholders to partners. 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 in be amended by the general partners to change the name and the AIMCO Operating Partnership Agreement, whereby the location of the principal place of business of your general partner may, without the consent of the OP partnership, change the name or the residence of a Unitholders, amend the AIMCO Operating Partnership partner, substitute a limited partner, correct an error Agreement, amendments to the AIMCO Operating Partnership in your partnership's agreement of limited partnership Agreement require the consent of the holders of a and as required by law. Amendments of specified majority of the outstanding Common OP Units, excluding provisions of your partnership's agreement of limited AIMCO and certain other limited exclusions (a "Majority partnership may be made only with the prior written in Interest"). Amendments to the AIMCO Operating consent of all partners. Other amendments must be Partnership Agreement may be proposed by the general approved by the limited partners owning more than 50% of partner or by holders of a Majority in Interest. the units. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its its partnership interest and reimbursement for all fees services as general partner of the AIMCO Operating and expenses as set forth in your partnership's agreement Partnership. However, the general partner is entitled to of limited partnership, the general partner receives payments, allocations and distributions in its capacity $5,800 annually and may receive other fees for additional as general partner of the AIMCO Operating Partnership. In services. Moreover, the general partner or certain addition, the AIMCO Operating Partnership is responsible affiliates may be entitled to compensation for additional for all expenses incurred relating to the AIMCO Operating services rendered. 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-65 3635 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross negligence, partnership, limited partners are not subject to no OP Unitholder has personal liability for the AIMCO assessment nor personally liable for any of the debts or Operating Partnership's debts and obligations, and obligations of your partnership or any of losses of your liability of the OP Unitholders for the AIMCO Operating partnership beyond its obligations to contribute to the Partnership's debts and obligations is generally limited capital of your partnership as specified in your to the amount of their investment in the AIMCO Operating partnership's agreement of limited partnership and as Partnership. However, the limitations on the liability of otherwise provided by law. limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 partners have fiduciary responsibility for Unless otherwise provided for in the relevant partnership the safekeeping and use of all funds and assets of your agreement, Delaware law generally requires a general partnership. The general partners must manage and control partner of a Delaware limited partnership to adhere to the affairs of your partnership to the best of their fiduciary duty standards under which it owes its limited abilities and must exercise good faith in carrying out partners the highest duties of good faith, fairness and the business of your partnership as set for in your loyalty and which generally prohibit such general partner partnership's agreement of limited partnership. The from taking any action or engaging in any transaction as general partners must devote such time and attention to to which it has a conflict of interest. The AIMCO the business, affairs and operations of your partnership Operating Partnership Agreement expressly authorizes the business, as they, in their sole discretion, deem general partner to enter into, on behalf of the AIMCO necessary for the property performance of their duties. Operating Partnership, a right of first opportunity However, the general partners may, now and in the future, arrangement and other conflict avoidance agreements with engage in or hold interests in other business ventures of various affiliates of the AIMCO Operating Partnership and every kind and description for their own account the general partner, on such terms as the general including, without limitation, ventures such as those partner, in its sole and absolute discretion, believes undertaken by your partnership. Neither your partnership are advisable. The AIMCO Operating Partnership Agreement nor any of the partners will have any right in or to such expressly limits the liability of the general partner by independent business ventures or the income or profits providing that the general partner, and its officers and derived therefrom. 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 There are no material difference between the taxation of The AIMCO Operating Partnership is not subject to Federal your partnership and the AIMCO Operating Partnership. income taxes. Instead, each holder of OP Units includes in income its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in 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
S-66 3636 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 limitations; dissolve and Units" in the accompanying transactions such as the terminate your partnership; remove Prospectus. So long as any institution of bankruptcy a general partner for cause; elect Preferred OP Units are outstand- proceedings, an assignment for the a substitute general partner and 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- retiring when be necessary for effecting any ship Agreement, the general partner amendment of any of the has
S-67 3637 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS there is no remaining general provisions of the Partnership Unit the power to effect the partner unless, the limited Designation of the Preferred OP acquisition, sale, transfer, partners owning more the 50% of the Units that materially and adversely exchange or other disposition of then outstanding units elect to affects the rights or preferences any assets of the AIMCO Operating reconstitute your partnership and of the holders of the Preferred OP Partnership (including, but not admit a new general. Units. The creation or issuance of limited to, the exercise or grant any class or series of partnership of any conversion, option, units, including, without privilege or subscription right or limitation, any partnership units any other right available in that may have rights senior or connection with any assets at any superior to the Preferred OP Units, time held by the AIMCO Operating shall not be deemed to materially Partnership) or the merger, adversely affect the rights or consolidation, reorganization or preferences of the holders of other combination of the AIMCO Preferred OP Units. With respect to Operating Partnership with or into the exercise of the above de- another entity, all without the scribed 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- Your partnership may, but is not $ per Preferred OP Unit; tribute quarterly all, or such obligated to, make current provided, however, that at any time portion as the general partner may distributions out of its cash funds and from time to time on or after in its sole and absolute discretion as the general partner may, in its the fifth anniversary of the issue determine, of Available Cash (as discretion, determine. The date of the Preferred OP Units, the defined in the AIMCO Operating distributions payable to the AIMCO Operating Partnership may Partnership Agreement) generated by partners are not fixed in amount adjust the annual distribution rate the AIMCO Operating Partnership and depend upon the operating on the Preferred OP Units to the during such quarter to the general 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. Your of five years, and (ii) the annual established by the general partner partnership has made distri- dividend rate on the most recently with respect to such quarter, in butions in the past and is issued AIMCO non-convertible accordance with their respective projected to made distributions in preferred stock which ranks on a interests in the AIMCO Operating 1998. 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 Available Cash, distributions
S-68 3638 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS on the Preferred OP Units. No upon liquidation or other interest, or sum of money in lieu distributions. See "Per Share and of interest, shall be payable in Per Unit Data" in the accompanying respect of any distribution pay- Prospectus. ment or payments on the Preferred OP Units that may be in arrears. The general partner in its sole and absolute discretion may distribute When distributions are not paid in to the OP Unitholders Available full upon the Preferred OP Units or Cash on a more frequent basis and any Parity Units, all distributions provide for an appropriate record declared upon the Preferred OP date. Units and any Parity Units shall be declared ratably in proportion to The AIMCO Operating Partnership the respective amounts of Agreement requires the general distributions accumulated, accrued partner to take such reasonable and unpaid on the Preferred OP efforts, as determined by it in its Units and such Parity Units. Unless sole and absolute discretion and full cumulative distributions on consistent with AIMCO's the Preferred OP Units have been qualification as a REIT, to cause declared and paid, except in the AIMCO Operating Partnership to limited circumstances, no distribute sufficient amounts to distributions may be declared or enable the general partner to paid or set apart for payment by transfer funds to AIMCO and enable the AIMCO Operating Partnership and AIMCO to pay stockholder dividends no other distribution of cash or that will (i) satisfy the other property may be declared or requirements for qualifying as a made, directly or indirectly, by REIT under the Code and the the AIMCO Operating Partnership Treasury Regulations and (ii) avoid with respect to any Junior Units, any Federal income or excise tax nor 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 and be Preferred OP Units and the OP Units. The AIMCO Operating Part- substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the such person if: (1) the interest on any securities exchange. The transferability of the OP Units. being acquired by the assignee Preferred OP Units are subject to Until the expiration of one year consists of assignors entire restrictions on transfer as set from the date on which an OP interest, (2) a written assignment forth in the AIMCO Operating Unitholder acquired OP Units, has been duly executed and Partnership Agreement. subject to certain exceptions, such acknowledged by the assignor and OP Unitholder may not transfer all assignee, (3) the written approval Pursuant to the AIMCO Operating or any portion of its OP Units to of the general partners which may Partnership Agreement, until the any transferee without the consent be withheld in the sole and expiration of one year from the of the general partner, which absolute discretion of the general date on which a holder of Preferred consent may be withheld in its sole partners has been granted, (4) the OP Units acquired Preferred OP and absolute discretion. After the assignor or the assignee pays a Units, subject to certain expiration of one year, such OP transfer fee (5) the transfer will exceptions, such holder of Unitholder has the right to not result in a termination of your Preferred OP Units may not transfer transfer all or any portion of its partnership for tax purposes, (7) all or any portion of its Pre- OP Units to any person, subject to the transfer does not violate any ferred OP Units to any transferee the satisfaction of certain applicable securities laws and (8) without the consent of the general conditions specified in the AIMCO the assignor and assignee have partner, which consent may be Operating Partnership Agreement, complied with such other conditions withheld in its sole and absolute including the general partner's as set forth in your partnership's discretion. After the expiration of right of first refusal. See agreement of limited partnership. one year, such holders of Preferred "Description of OP Units -- There are no redemption rights OP Units has the right to transfer Transfers and Withdrawals" in the associated with your units. 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 re-
S-69 3639 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS After a one-year holding period, a quire 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-70 3640 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $5,800 annually and may receive reimbursement for expenses generated in its capacity as general partner and other fees for additional services from your partnership. The property manager received management fees of $78,000 in 1996, $83,000 in 1997 and $42,065 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's 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'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 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-71 3641 YOUR PARTNERSHIP GENERAL Sharon Woods, L.P. is a Delaware limited partnership which raised net proceeds of approximately $2,889,000 in 1985 through a private offering. The promoter for the private offering of your partnership was Freeman Properties, Inc. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 57 limited partners of your partnership and a total of 44.5 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on June 28, 1985 for the purpose of owning and operating a single apartment property located in Sharonville, Ohio, known as "Timber Ridge Apartments." Your partnership's property consists of 248 apartment units. Your partnership's property had an average occupancy rate of approximately 91.94% in 1996 and 91.94% in 1997. The average annual rent per apartment unit is approximately $6,107. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $78,000, $83,000 and $42,065, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on July 1, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-72 3642 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $5,154,711, payable to FNMA, which bears interest at a rate of 7.83%. The mortgage debt is due in October 2003. Your partnership also has a second mortgage note outstanding of $168,300, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 3643 Below is selected financial information for Sharon Woods, L.P. taken from the financial statements described above. See "Index to Financial Statements."
SHARON WOODS, L.P. ------------------------------------------------------------------------------------------- (1) (1) (1) (1) (1) (1) (1) 6/30/98 6/30/97 1997 1996 1995 1994 1993 ----------- ----------- ----------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA Cash and Cash Equivalents........... $ 323,874 $ 440,359 $ 335,000 $ 467,000 $ 223,418 $ 278,190 $ 275,892 Land & Building..................... 6,943,788 6,796,658 6,874,000 6,748,000 6,640,328 6,449,462 5,772,779 Accumulated Depreciation............ (1,347,685) (1,060,982) (1,204,000) (917,000) (634,696) (369,023) (143,494) Other Assets........................ 560,084 552,209 597,000 531,000 699,731 745,448 1,313,605 ----------- ----------- ----------- ---------- ---------- ---------- ---------- Total Assets............... $ 6,480,061 $ 6,728,244 $ 6,602,000 $6,829,000 $6,928,781 $7,104,077 $7,218,782 =========== =========== =========== ========== ========== ========== ========== Mortgage & Accrued Interest......... 5,259,762 5,319,347 5,296,000 5,353,000 5,404,413 5,451,486 5,494,199 Other Liabilities................... 148,045 127,652 209,000 216,000 196,315 199,370 95,366 ----------- ----------- ----------- ---------- ---------- ---------- ---------- Total Liabilities.......... $ 5,407,807 $ 5,446,999 $ 5,505,000 $5,569,000 $5,600,728 $5,650,856 $5,589,565 ----------- ----------- ----------- ---------- ---------- ---------- ---------- Partners Capital.................... $ 1,072,254 $ 1,281,245 $ 1,097,000 $1,260,000 $1,328,053 $1,453,221 $1,629,217 =========== =========== =========== ========== ========== ========== ==========
SHARON WOODS, L.P. ------------------------------------------------------------------------------------ (1) (1) (1) (1) (1) (1) (1) 6/30/98 6/30/97 1997 1996 1995 1994 1993 -------- -------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue............................. $748,267 $745,295 $1,532,000 $1,456,000 $1,404,221 $1,405,591 $1,015,073 Other Income............................... 61,187 69,601 144,000 132,000 122,060 123,156 170,489 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Revenue..................... $809,454 $814,896 $1,676,000 $1,588,000 $1,526,281 $1,528,747 $1,185,562 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Expenses......................... 399,113 353,700 765,000 755,000 740,127 591,417 479,593 General & Administrative................... 25,968 17,940 43,000 56,000 54,077 234,870 157,014 Depreciation............................... 143,500 143,500 287,000 283,000 265,673 225,529 143,494 Interest Expense........................... 209,222 214,103 459,000 465,000 487,394 436,693 446,131 Property Taxes............................. 56,397 64,408 92,000 97,000 104,178 216,234 259,432 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Expenses.................... $834,200 $793,651 $1,646,000 $1,656,000 $1,651,449 $1,704,743 $1,485,664 -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss).......................... $(24,746) $ 21,245 $ 30,000 $ (68,000) $ (125,168) $ (175,996) $ (300,102) ======== ======== ========== ========== ========== ========== ==========
- --------------- NOTES (1) Information prepared on a Federal Income Tax Basis. S-74 3644 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized a net loss of $24,746 for the six months ended June 30, 1998, compared to net income of $21,245 for the six months ended June 30, 1997. The decrease in net income of $45,991, was primarily the result of an increase in operating expenses and a decrease in rental revenues. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $809,454 for the six months ended June 30, 1998, compared to $814,896 for the six months ended June 30, 1997, a decrease of $5,442, or .67%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $399,113 for the six months ended June 30, 1998, compared to $353,700 for the six months ended June 30, 1997, an increase of $45,413 or 12.84%. The increase is primarily due to a non-capitalizable property improvements. Management expenses totaled 42,065 for the six months ended June 30, 1998, compared to $40,621 for the six months ended June 30, 1997, an increase of $1,444, or 3.55%. General and Administrative Expenses General and administrative expenses totaled $25,968 for the six months ended June 30, 1998 compared to $17,940 for the six months ended June 30, 1997, an increase of $8,028 or 44.75%. The increase is primarily due to an increase in training and travel expenses. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $209,222 for the six months ended June 30, 1998, compared to $214,103 for the six months ended June 30, 1997, a decrease of $4,881, or 2.28%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $30,000 for the year ended December 31, 1997, compared to a net loss of $68,000 for the year ended December 31, 1996. The increase in net income of $98,000 was primarily the result of increased revenue. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,676,000 for the year ended December 31, 1997, compared to $1,588,000 for the year ended December 31, 1996, an increase of $88,000, or 5.54% rate increase, coupled with a slight increase in occupancy. S-75 3645 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $765,000 for the year ended December 31, 1997, compared to $755,000 for the year ended December 31, 1996, an increase of $10,000 or 1.32%. Management expenses totaled $83,000 for the year ended December 31, 1997, compared to $78,000 for the year ended December 31, 1996, an increase of $5,000, or 6.41%. The increase resulted from an increase in rental revenue as management fees are calculated based on a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $43,000 for the year ended December 31, 1997 compared to $56,000 for the year ended December 31, 1996, a decrease of $13,000 or 23.21%. The decrease is primarily due to lower professional fees in 1997. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $459,000 for the year ended December 31, 1997, compared to $465,000 for the year ended December 31, 1996, a decrease of $6,000, or 1.29%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $68,000 for the year ended December 31, 1996, compared to a net loss of $125,168 for the year ended December 31, 1995. The increase in net income of $57,168 was primarily the result of increased rental revenue due to increases in rental rates. These factors discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,588,000 for the year ended December 31, 1996, compared to $1,526,281 for the year ended December 31, 1995, an increase of $61,719, or 4.04% . Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $755,000 for the year ended December 31, 1996, compared to $740,127 for the year ended December 31, 1995, an increase of $14,873 or 2.01%. Management expenses totaled $78,000 for the year ended December 31, 1996, compared to $77,630 for the year ended December 31, 1995, an increase of $370, or 0.48%. General and Administrative Expenses General and administrative expenses totaled $56,000 for the year ended December 31, 1996 compared to $54,077 for the year ended December 31, 1995, an increase of $1,923 or 3.56%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $465,000 for the year ended December 31, 1996, compared to $487,394 for the year ended December 31, 1995, a decrease of $22,394, or 4.59%. S-76 3646 Liquidity and Capital Resources As of June 30, 1998, your partnership had $323,874 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 partners of your partnership and their affiliates are not liable, responsible or accountable, in damages or otherwise to your partnership or any limited partner for any acts performed by any of them which are reasonably believed by them to be within the scope of the authority conferred on them by your partnership's agreement of limited partnership and which in good faith, they believed to be in the best interests of your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation. 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 owned by AIMCO. See "Conflicts of Interest". The general partners and their affiliates are entitled to indemnification by your partnership for any and all acts performed by them in the good faith belief that the act or omission was in the best interests of your partnership and which are reasonably within the scope of the authority conferred upon them by your partnership's agreement of limited partnership or by your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation; provided, however, that such indemnity will be paid out of and only to the extent of partnership 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 partners of your partnership. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $64,921.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 0.00 1995........................................................ 0.00 1996........................................................ 0.00 1997........................................................ 3,853.93 1998 (through June 30)...................................... 0.00
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or S-77 3647 maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP AIMCO currently owns a 2.25% limited partnership interest in your partnership. Except as described above, neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................... $26,200 1995........................... 36,650 1996........................... 38,000 1997........................... 38,000 1998 (through June 30).........
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $77,630 1996........................................... 78,000 1997........................................... 83,000 1998 (through June 30)......................... 42,065
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 company paid to the property manager or AIMCO and its affiliates. S-78 3648 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 audited financial statements of Sharon Woods, L.P. at December 31, 1997, 1996 and 1995 and for each of the years then ended, appearing in this Prospectus Supplement have been audited by Ernst & Young, LLP independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-79 3649 SHARON WOODS, L.P. INDEX FINANCIAL STATEMENT
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (Unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (Unaudited)........................ F-4 Note A -- Basis of Presentation............................. F-5 Independent Auditors' Report................................ F-6 Consolidated Balance Sheet as of December 31, 1997.......... F-7 Consolidated Statement of Operations for the year ended December 31, 1997......................................... F-8 Consolidated Statement of Changes in Partners Capital for the year ended December 31, 1997.......................... F-9 Consolidated Statement of Cash Flows for the year ended December 31, 1997......................................... F-10 Notes to Consolidated Financial Statements.................. F-11 Independent Auditors' Report................................ F-16 Consolidated Statement of Assets, Liabilities and Partners' Equity -- Federal Income Tax Basis as of December 31, 1997...................................................... F-17 Consolidated Statement of Revenues and Expenses -- Federal Income Tax Basis for the year ended December 31, 1997..... F-18 Consolidated Statement of Changes in Partners' Equity -- Federal Income Tax Basis for the year ended December 31, 1997......................................... F-19 Consolidated Statement of Cash Flows -- Federal Income Tax Basis for the year ended December 31, 1997................ F-20 Notes to Consolidated Financial Statements -- Federal Income Tax Basis (Unaudited)..................................... F-21 Independent Auditors' Report................................ F-24 Consolidated Statement of Assets, Liabilities and Partners' Equity -- Federal Income Tax Basis as of December 31, 1996 (Unaudited)............................................... F-25 Consolidated Statement of Revenues and Expenses -- Federal Income Tax Basis for the year ended December 31, 1996..... F-26 Consolidated Statement of Changes in Partners' Equity -- Federal Income Tax Basis for the year ended December 31, 1996......................................... F-27 Consolidated Statement of Cash Flows -- Federal Income Tax Basis for the year ended December 31, 1996................ F-28 Notes to Consolidated Financial Statements -- Federal Income Tax Basis................................................. F-29 Independent Auditors' Report................................ F-32 Consolidated Statement of Assets, Liabilities and Partners' Equity -- Federal Income Tax Basis as of December 31, 1995 (Unaudited)............................................... F-33 Consolidated Statement of Revenues and Expenses -- Federal Income Tax Basis for the year ended December 31, 1995..... F-34 Consolidated Statement of Changes in Partners' Equity -- Federal Income Tax Basis for the year ended December 31, 1995......................................... F-35 Consolidated Statement of Cash Flows -- Federal Income Tax Basis for the year ended December 31, 1995................ F-36 Notes to Consolidated Financial Statements -- Federal Income Tax Basis................................................. F-37
F-1 3650 SHARON WOODS, L.P. CONDENSED BALANCE SHEET INCOME TAX BASIS JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 323,874 Receivables and Deposits.................................... 35,255 Restricted Escrows.......................................... 110,648 Other Assets................................................ 414,181 Investment Property: Land...................................................... 858,808 Building and related personal property.................... 6,084,980 ------------ 6,943,788 Less: Accumulated depreciation............................ (1,347,685) 5,596,103 ------------ ---------- Total Assets...................................... $6,480,061 ========== LIABILITIES AND PARTNERS' CAPITAL Other Accrued Liabilities................................... $ 148,045 Notes Payable............................................... 5,259,762 Partners' Capital........................................... 1,072,254 ---------- Total Liabilities and Partners' Capital........... $6,480,061 ==========
F-2 3651 SHARON WOODS, L.P. CONDENSED STATEMENTS OF OPERATIONS INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $748,267 $745,295 Other Income.............................................. 61,187 69,601 Gain (Loss) on Disp of Property........................... -- -- Casualty Gain/Loss........................................ -- -- -------- -------- Total Revenues.................................... 809,454 814,896 Expenses: Operating Expenses........................................ 399,113 353,700 General and Administrative Expenses....................... 25,968 17,940 Depreciation Expense...................................... 143,500 143,500 Interest Expense.......................................... 209,222 214,103 Property Tax Expense...................................... 56,397 64,408 -------- -------- Total Expenses.................................... 834,200 793,651 Income (Loss) from Operations............................... (24,746) 21,245 Extraord. Gain on Early Exting. of Debt..................... -- -- Loss on Sale of Invest. Property............................ -- -- Casualty Gain............................................... -- -- -------- -------- Net Income (Loss)................................. $(24,746) $ 21,245 ======== ========
F-3 3652 SHARON WOODS, L.P. CONDENSED STATEMENTS OF CASH FLOWS INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Operating Activities: Net Income (loss)......................................... $(24,746) $ 21,245 Adjustments to reconcile net income (loss) to net cash provided by operating Activities:...................... -- -- Depreciation and Amortization............................. 143,500 143,500 Loss on Casualty event.................................... -- -- Extraordinary loss on refinancing......................... -- -- Changes in accounts: Receivables and deposits and other assets.............. 39,564 (18,251) Accounts Payable and accrued expenses.................. (60,955) (88,348) -------- -------- Net cash provided by (used in) operating activities....................................... 97,363 58,146 -------- -------- Investing Activities Property improvements and replacements.................... (69,603) (48,176) Property improvements -- NON-CASH......................... -- -- Proceeds from sale of investments......................... -- -- Collections on notes receivable........................... -- -- Net (increase)/decrease in restricted escrows............. (2,648) (2,958) Net insurance proceeds received from casualty events...... -- -- Dividends received........................................ -- -- -------- -------- Net cash provided by (used in) investing activities....... (72,251) (51,134) -------- -------- Financing Activities Payments on mortgage...................................... (36,238) (33,653) Repayment of mortgage..................................... -- -- Prepayment penalties...................................... -- -- Proceeds from refinancing of mortgage..................... -- -- Payment of Loan Costs..................................... -- -- Partners' Distributions................................... -- -- -------- -------- Net cash provided by (used in) financing activities....................................... (36,238) (33,653) -------- -------- Net increase (decrease) in cash and cash equivalents...... (11,126) (26,641) Cash and cash equivalents at beginning of year............ 335,000 467,000 -------- -------- Cash and cash equivalents at end of period........ $323,874 $440,359 ======== ========
F-4 3653 SHARON WOODS, L.P. NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Sharon Woods, L.P. as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with the accounting basis for federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis for federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 3654 REPORT OF INDEPENDENT AUDITORS The Partners Sharon Woods, L. P. (A Delaware Limited Partnership) We have audited the accompanying consolidated balance sheet of Sharon Woods, L.P. (A Delaware Limited Partnership) as of December 31, 1997 and the related consolidated statements of operations, changes in partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sharon Woods, L.P., at December 31, 1997 and the consolidated results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP August 31, 1998 Greenville, South Carolina F-6 3655 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 335 Receivables and deposits.................................... 156 Restricted escrows.......................................... 108 Other assets................................................ 151 Investment property (Notes B and D): Land...................................................... $ 859 Buildings and related personal property................... 6,015 ------- 6,874 Less accumulated depreciation............................. (1,085) 5,789 ------- ------ $6,539 ====== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable.......................................... $ 44 Tenant security deposit liability......................... 50 Other liabilities......................................... 134 Mortgage notes payable (Note B)........................... 5,296 ------ 5,524 Partners' capital: General partners.......................................... $ 141 Limited partners (45 units issued and outstanding)........ 874 1,015 ------- ------ $6,539 ======
See accompanying notes. F-7 3656 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Rental income............................................. $ 1,532 Other income.............................................. 144 ------- 1,676 Expenses: Operating................................................. $765 General and administrative................................ 43 Depreciation.............................................. 268 Interest.................................................. 459 Property taxes............................................ 92 1,627 ---- ------- Net income.................................................. $ 49 ======= Net income allocated to general partners (11.08%)........... $ 5 Net income allocated to limited partners (88.92%)........... 44 ------- $ 49 ======= Net income per limited partnership unit..................... $968.24 =======
See accompanying notes. F-8 3657 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ------ Capital at December 31, 1996................................ $157 $1,002 $1,159 Net income................................................ 5 44 49 Distributions to partners................................. (21) (172) (193) ---- ------ ------ Capital at December 31, 1997................................ $141 $ 874 $1,015 ==== ====== ======
See accompanying notes. F-9 3658 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net income................................................ $ 49 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 268 Amortization of loan costs and mortgage discount....... 37 Change in accounts: Receivables and deposits............................. (57) Accounts payable..................................... 7 Tenant security deposit liabilities.................. 1 Other liabilities.................................... (15) ----- Net cash provided by operating activities................. 290 Cash flows from investing activities Property improvements and replacements.................... (126) Deposits to restricted escrows............................ (5) ----- Net cash used in investing activities..................... (131) Cash flows from financing activities Principal payments on mortgage notes payable.............. (68) Distributions to partners................................. (193) ----- Net cash used in financing activities..................... (261) ----- Net decrease in cash and cash equivalents................. (102) Cash and cash equivalents at December 31, 1996............ 437 ----- Cash and cash equivalents at December 31, 1997............ $ 335 ===== Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 423 ===== Distributions payable..................................... $ 21 =====
See accompanying notes. F-10 3659 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization The limited partnership was organized for the purpose of acquiring, owning and operating the Timber Ridge Apartments in Sharonville, Ohio. Forty-five units of limited partnership interests, an individual general partner interest, a limited partnership general partner interest, and a corporate general partner interest were issued. The Partnership shall terminate on July 1, 2015, unless terminated sooner, pursuant to the agreement. Principles of Consolidation The financial statements include the accounts of the Partnership and its majority owned partnerships. All significant interpartnership balances have been eliminated. Minority interest is immaterial and not shown separately in the financial statements. Investment Property Investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicated that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks and Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Fair Value of Financial Instruments The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long-term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership approximates its carrying value. F-11 3660 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Loan Costs Loan costs of approximately $258,000 incurred with the financing of long-term debt are amortized on a straight-line basis over the life of the debt. Accumulated amortization is approximately $107,000 at December 31, 1997. These costs are included in "Other Assets". Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Partnership Allocations Net income or losses are allocated 88.92% to the limited partners and 11.08% to the general partners in accordance with the partnership agreement. Distributions of available cash (cash-flow) or proceeds from financing or sale of the property are allocated among the limited and general partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs The Partnership expenses the costs of advertising as incurred. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 30 years. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. The balance in the restricted escrow account at December 31, 1997 was approximately $108,000. F-12 3661 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- MORTGAGE NOTES PAYABLE Mortgage notes payable consist of the following:
(IN THOUSANDS) -------------- Mortgage note payable to Lexington Mortgage Company, secured by a deed of trust on the Timber Ridge apartments. This note bears interest at a rate of 7.83% per annum. Monthly installments of principal and interest of approximately $40,000 are due through September 2003, with a balloon payment of $4,669,000 due in October 2003................. $5,191 Subordinated mortgage note payable to Lexington Mortgage Company bearing interest of 7.83% per annum. Monthly payments of interest only, totaling approximately $1,000, are due through September 2003, with a balloon payment of $168,000 due in October 2003.............................. 168 ------ 5,359 Unamortized discount, net of accumulated amortization of approximately $47,000..................................... (63) ------ $5,296 ======
Principal maturities of mortgage notes payable at December 31, 1997 are as follows (in thousands): 1998........................................................ $ 73 1999........................................................ 79 2000........................................................ 86 2001........................................................ 93 2002........................................................ 100 Thereafter.................................................. 4,928 ------ $5,359 ======
The apartment property is pledged as collateral on the mortgage notes. NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES In January 1991, the Partnership entered into a management contract with Insignia Management Group, an affiliate of Insignia Financial Group, Inc., ("Insignia") who is an affiliate of the managing general partner of Sharon Woods, L.P. As a result, affiliates of Insignia now provide property management and asset management services to the Partnership. The following items were incurred with Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $83 Reimbursement for investor services, asset management and partnership accounting.................................... 38
For the period of January 1, 1997, to August 31, 1997, the Partnership insured its property under a master policy through an agency and insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. F-13 3662 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Insignia entered into an Agreement and Plan of Merger, dated as of May 26, 1998, (as subsequently amended and restated, the "Merger Agreement") with Apartment Investment and Management Company ("AIMCO"), pursuant to which Insignia will merge its national residential property management operations and its controlling interest in Insignia Properties Trust with and into AIMCO, with AIMCO as the survivor. Consummation of the Merger, which is anticipated to occur in the third quarter of 1998, is subject to certain conditions, including the approval of the stockholders of Insignia (but not the approval of the stockholders of AIMCO). If the closing occurs, AIMCO will then control the General Partner of the Partnership. NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
COST BUILDINGS CAPITALIZED AND RELATED SUBSEQUENT PERSONAL TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ----------- ----------- Timber Ridge, Sharonville, Ohio.................... $5,359 $859 $4,867 $1,148 ====== ==== ====== ======
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS ----------- ---- ----------- -------- ------------ -------- ------------- Timber Ridge.................. $859 $ 6,015 $ 6,874 $ 1,085 03/01/93 5-30 ==== ======== ======== ========
The depreciable lives included above are for the buildings and components. The depreciable live for related personal property are for 5 to 7 years. Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year.............................. $6,748 Property improvements..................................... 126 ------ Balance at end of year.................................... $6,874 ====== Accumulated Depreciation Balance at beginning of year.............................. $ 817 Additions charged to expense.............................. 268 ------ Balance at end of year.................................... $1,085 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $6,874,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $1,204,000. NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. F-14 3663 SHARON WOODS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a reconciliation of reported net income and Federal taxable loss (in thousands, except per unit data): Net income as reported...................................... $ 49 Deduct: Depreciation differences............................ (19) ------- Federal taxable income...................................... $ 30 ======= Federal taxable income per limited partnership unit......... $592.80 =======
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net assets as reported...................................... $1,015 Accumulated depreciation.................................... (119) Syndication fees............................................ 182 Other....................................................... 19 ------ Net assets -- tax basis..................................... $1,097 ======
NOTE F -- YEAR 2000 (UNAUDITED) The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. NOTE G -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-15 3664 REPORT OF INDEPENDENT AUDITORS The Partners Sharon Woods, L. P. (A Delaware Limited Partnership) We have audited the accompanying consolidated statement of assets, liabilities and partners' equity -- Federal income tax basis of Sharon Woods, L. P. (A Delaware Limited Partnership) as of December 31, 1997 and the related consolidated statements of revenues and expenses -- Federal income tax basis, changes in partners' equity -- Federal income tax basis and cash flow -- Federal income tax basis for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As more fully described in Note A, these financial statements have been prepared on the accounting basis used for Federal income tax purposes which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated assets, liabilities and partners' equity of Sharon Woods, L. P., at December 31, 1997 and its consolidated revenues and expenses, changes in partners' equity and cash flow for the year then ended, on the basis of accounting described in Note A. /s/ ERNST & YOUNG LLP February 28, 1998 Greenville, South Carolina F-16 3665 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES, AND PARTNERS' EQUITY -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 335 Receivables and deposits.................................... 156 Restricted escrows.......................................... 108 Other assets................................................ 333 Apartment property at cost (Note B): Land...................................................... $ 859 Buildings and related personal property................... 6,015 ------- 6,874 Less accumulated depreciation............................. (1,204) 5,670 ------- ------ $6,602 ====== LIABILITIES AND PARTNERS' EQUITY Liabilities: Accounts payable.......................................... $ 44 Tenant security deposit liability......................... 31 Other liabilities......................................... 134 Mortgage note payable (Note B)............................ 5,296 ------ 5,505 Partners' equity............................................ 1,097 ------ $6,602 ======
See accompanying notes. F-17 3666 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Revenues: Rental income............................................. $1,532 Other income.............................................. 144 ------ 1,676 Expenses: Operating................................................. 765 General and administrative................................ 43 Depreciation.............................................. 287 Interest.................................................. 459 Property taxes............................................ 92 ------ 1,646 ------ Excess of revenues over expenses............................ $ 30 ======
See accompanying notes. F-18 3667 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ------ Equity at December 31, 1996................................. $168 $1,092 $1,260 Excess of revenues over expenses.......................... 3 27 30 Distributions to partners................................. (21) (172) (193) ---- ------ ------ Equity at December 31, 1997................................. $150 $ 947 $1,097 ==== ====== ======
See accompanying notes. F-19 3668 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF CASH FLOW -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Excess of revenues over expenses.......................... $ 30 Adjustments to reconcile excess of revenues over expenses to net cash provided by operating activities: Depreciation........................................... 287 Amortization of loan costs and mortgage discount....... 37 Change in accounts: Receivables and deposits............................. (57) Accounts payable..................................... 7 Tenant security deposit liabilities.................. 1 Other liabilities.................................... (15) ----- Net cash provided by operating activities......... 290 Cash flows from investing activities Property improvements and replacements.................... (126) Deposits to restricted escrows............................ (5) ----- Net cash used in investing activities............. (131) Cash flows from financing activities Principal payments on mortgage notes payable.............. (68) Distributions to partners................................. (193) ----- Net cash used in financing activities............. (261) ----- Net decrease in cash and cash equivalents................. (102) Cash and cash equivalents at December 31, 1996............ 437 ----- Cash and cash equivalents at December 31, 1997............ $ 335 ===== Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 423 ===== Distributions payable..................................... $ 21 =====
See accompanying notes. F-20 3669 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The limited partnership was organized for the purpose of acquiring, owning and operating the Timber Ridge Apartments in Sharonville, Ohio. Forty-five units of limited partnership interests, an individual general partner interest, a limited partnership general partner interest, and a corporate general partner interest were issued. The Partnership shall terminate on July 1, 2015, unless terminated sooner, pursuant to the agreement. Basis of Accounting The Partnership's financial statements are prepared using the tax accrual method of accounting as set forth in the Federal income tax code and regulations. This method of accounting differs from generally accepted accounting principles primarily in the timing of recognition of revenue and certain expenses, recognition of certain costs of the Project, methods of depreciation and useful lives of assets and recognition and amortization of syndication costs. Principles of Consolidation The financial statements include the accounts of the Partnership and its majority owned partnerships. All significant interpartnership balances have been eliminated. Minority interest is immaterial and not shown separately in the financial statements. Apartment Properties Apartment properties are stated at cost. Depreciation is provided by the modified accelerated cost recovery system (MACRS) for 27.5 year residential property. Loan Costs Loan costs of approximately $258,000 incurred with the financing of long-term debt are amortized on a straight-line basis over the life of the debt. Accumulated amortization is approximately $107,000 at December 31, 1997. These costs are included in "Other Assets". Partnership Allocations Subject to possible adjustments required under Section 704(b) of the Internal Revenue Service Code, net earnings (loss) are allocated 88.92% to the limited partners and 11.08% to the general partners in accordance with the partnership agreement. Distributions of available cash (cash flow) or proceeds from financing or sale of the property are allocated among the limited and general partners in accordance with the partnership agreement. Income Taxes The financial statements include only those assets and liabilities and revenues and expenses which relate to the business of the Partnership. No provision has been made for Federal income taxes since such taxes are the personal responsibility of the partners. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determination by taxing authorities. F-21 3670 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and includes the deposits in "Receivables and deposits". Deposits are refunded when the tenant vacates the apartment if there has been no damage. Leases The Partnership generally leases apartment units for twelve-month terms or less. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Syndication Costs Syndication costs of approximately $182,000 are included in "Other assets". They are stated at cost to the Partnership and are not amortizable for Federal income tax purposes, but result in a capital loss upon the dissolution of the Partnership. NOTE B -- MORTGAGE NOTES PAYABLE Mortgage notes payable consist of the following:
(IN THOUSANDS) -------------- Mortgage note payable to Lexington Mortgage Company, secured by a deed of trust on the Timber Ridge apartments. This note bears interest at a rate of 7.83% per annum. Monthly installments of principal and interest of approximately $40,000 are due through October 2003...................... $5,191 Subordinated mortgage note payable to Lexington Mortgage Company bearing interest of 7.83% per annum. Monthly payments of interest only, totaling approximately $1,000, are due through September 2003. Principal and remaining interest are due October 2003............................. 168 ------ 5,359 Unamortized discount, net of accumulated amortization of approximately $47,000..................................... (63) ------ $5,296 ======
F-22 3671 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Principal maturities of mortgage notes payable at December 31, 1997 are as follows (in thousands): 1998....................................................... $ 73 1999....................................................... 79 2000....................................................... 86 2001....................................................... 93 2002....................................................... 100 Thereafter................................................. 4,928 ------ $5,359 ======
The apartment property is pledged as collateral on the mortgage notes. NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES In January 1991, the Partnership entered into a management contract with Insignia Management Group, an affiliate of Insignia Financial Group, Inc., ("Insignia") who is an affiliate of the managing general partner of Sharon Woods, L.P. As a result, affiliates of Insignia now provide property management and asset management services to the Partnership. The following items were incurred with Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $83 Reimbursement for investor services, asset management and partnership accounting.................................... 38
NOTE D -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-23 3672 REPORT OF INDEPENDENT AUDITORS The Partners Sharon Woods, L. P. (A Delaware Limited Partnership) We have audited the accompanying consolidated statement of assets, liabilities and partners' equity -- Federal income tax basis of Sharon Woods, L. P. (A Delaware Limited Partnership) as of December 31, 1996 and the related consolidated statements of revenues and expenses -- Federal income tax basis, changes in partners' equity -- Federal income tax basis and cash flow -- Federal income tax basis for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As more fully described in Note A, these financial statements have been prepared on the accounting basis used for Federal income tax purposes which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated assets, liabilities and partners' equity of Sharon Woods, L. P., as of December 31, 1996 and its consolidated revenues and expenses, changes in partners' equity and cash flow for the year then ended, on the basis of accounting described in Note A. /s/ ERNST & YOUNG LLP February 21, 1997 Greenville, South Carolina F-24 3673 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES, AND PARTNERS' EQUITY -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1996 (IN THOUSANDS) ASSETS Cash and cash equivalents: Unrestricted.............................................. $ 437 Restricted -- tenant security deposits.................... 30 Account receivable.......................................... 15 Escrow for taxes............................................ 54 Restricted escrows.......................................... 103 Loan costs, net of accumulated amortization of $81.......... 177 Syndication costs........................................... 182 Apartment property at cost (Note B): Land...................................................... $ 859 Buildings and related personal property................... 5,889 ------ 6,748 Less accumulated depreciation............................. (917) 5,831 ------ ------ $6,829 ====== LIABILITIES AND PARTNERS' EQUITY Liabilities: Accounts payable.......................................... $ 37 Tenant security deposits.................................. 30 Other liabilities......................................... 149 Mortgage note payable (Note B)............................ 5,353 ------ 5,569 Partners' equity............................................ 1,260 ------ $6,829 ======
See accompanying notes. F-25 3674 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Revenues: Rental income............................................. $1,456 Other income.............................................. 132 ------ 1,588 Expenses: Operating................................................. $525 General and administrative................................ 56 Maintenance............................................... 215 Depreciation.............................................. 283 Interest.................................................. 465 Property taxes............................................ 97 Write-off of uncollectible accounts....................... 15 1,656 ---- ------ Excess of expenses over revenues............................ $ (68) ======
See accompanying notes. F-26 3675 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ------ Equity at December 31, 1995................................. $175 $1,153 $1,328 Excess of expenses over revenues.......................... (7) (61) (68) ---- ------ ------ Equity at December 31, 1996................................. $168 $1,092 $1,260 ==== ====== ======
See accompanying notes. F-27 3676 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENT OF CASH FLOW -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Cash flows from operating activities Excess of expenses over revenues.......................... $ (68) Adjustments to reconcile excess of expenses over revenues to net cash provided by operating activities: Depreciation........................................... 283 Amortization of loan costs and mortgage discount....... 37 Write-off of uncollectible account..................... 15 Change in accounts: Restricted cash -- tenant security deposits.......... 8 Accounts receivable.................................. (27) Escrow for taxes..................................... 43 Accounts payable..................................... 12 Tenant security deposit liabilities.................. (9) Other liabilities.................................... 17 ----- Net cash provided by operating activities......... 311 Cash flows from investing activities Property improvements and replacements.................... (108) Deposits to restricted escrows............................ (4) Withdrawals from restricted escrows....................... 115 ----- Net cash provided by investing activities......... 3 Cash flows from financing activities Principal payments on mortgage notes payable.............. (63) ----- Net increase in cash........................................ 251 Unrestricted cash at December 31, 1995...................... 186 ----- Unrestricted cash at December 31, 1996...................... $ 437 ===== Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 428 =====
See accompanying notes. F-28 3677 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1996 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The limited partnership was organized for the purpose of acquiring, owning and operating the Timber Ridge Apartments in Sharonville, Ohio. Forty-five units of limited partnership interests, an individual general partner interest, a limited partnership general partner interest, and a corporate general partner interest were issued. The Partnership shall terminate on July 1, 2015, unless terminated sooner, pursuant to the agreement. Basis of Accounting The Partnership's financial statements are prepared using the tax accrual method of accounting as set forth in the Federal income tax code and regulations. This method of accounting differs from generally accepted accounting principles primarily in the timing of recognition of revenue and certain expenses, recognition of certain costs of the Project, methods of depreciation and useful lives of assets and recognition and amortization of syndication costs. Principles of Consolidation The financial statements include the accounts of the Partnership and its majority owned partnerships. All significant interpartnership balances have been eliminated. Minority interest is immaterial and not shown separately in the financial statements. Apartment Properties Apartment properties are stated at cost. Depreciation is provided by the modified accelerated cost recovery system (MACRS) for 27.5 year residential property. Loan Costs Loan costs of approximately $258,000 incurred with the financing of long-term debt are amortized on a straight-line basis over the life of the debt. Accumulated amortization is approximately $81,000 at December 31, 1996. Partnership Allocations Subject to possible adjustments required under Section 704(b) of the Internal Revenue Service Code, net earnings (loss) are allocated 88.92% to the limited partners and 11.08% to the general partners in accordance with the partnership agreement. Distributions of available cash (cash flow) or proceeds from financing or sale of the property are allocated among the limited and general partners in accordance with the partnership agreement. Income Taxes The financial statements include only those assets and liabilities and revenues and expenses which relate to the business of the Partnership. No provision has been made for Federal income taxes since such taxes are the personal responsibility of the partners. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying F-29 3678 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) interpretations, amounts reported in the financial statements could be changed at a later date upon final determination by taxing authorities. Cash and Cash Equivalents -- Unrestricted Cash The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and considers the deposits to be restricted cash. Deposits are refunded when the tenant vacates the apartment if there has been no damage. Leases The Partnership generally leases apartment units for twelve-month terms or less. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Syndication Costs Syndication costs are stated at cost to the Partnership and are not amortizable for Federal income tax purposes, but result in a capital loss upon the dissolution of the Partnership. NOTE B -- MORTGAGE NOTES PAYABLE Mortgage notes payable consist of the following:
(IN THOUSANDS) -------------- Mortgage note payable to Lexington Mortgage Company, secured by a deed of trust on the Timber Ridge apartments. This note bears interest at a rate of 7.83% per annum. Monthly installments of principal and interest of approximately $40,000 are due through October 2003...................... $5,259 Subordinated mortgage note payable to Lexington Mortgage Company bearing interest of 7.83% per annum. Monthly payments of interest only, totaling approximately $1,000, are due through September 2003. Principal and remaining interest are due October 2003............................. 168 ------ 5,427 Unamortized discount, net of accumulated amortization of approximately $36,000..................................... (74) ------ $5,353 ======
F-30 3679 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Principal maturities of mortgage notes payable at December 31, 1996 are as follows (in thousands): 1997....................................................... $ 68 1998....................................................... 73 1999....................................................... 79 2000....................................................... 86 2001....................................................... 93 Thereafter................................................. 5,028 ------ $5,427 ======
The apartment property is pledged as collateral on the mortgage notes. NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES In January 1991, the Partnership entered into a management contract with Insignia Management Group, an affiliate of Insignia Financial Group, Inc., ("Insignia") who is an affiliate of the managing general partner of Sharon Woods, L. P. As a result, affiliates of Insignia now provide property management and asset management services to the Partnership. The following items were incurred with Insignia and its affiliates in 1996 (in thousands): Property management fees.................................... $78 Reimbursement for investor services, asset management and partnership accounting.................................... 38
NOTE D -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-31 3680 REPORT OF INDEPENDENT AUDITORS The Partners Sharon Woods, L. P. (A Delaware Limited Partnership) We have audited the accompanying statement of assets, liabilities and partners' equity -- Federal income tax basis of Sharon Woods, L. P. (A Delaware Limited Partnership) as of December 31, 1995 and the related statements of revenues and expenses -- Federal income tax basis, changes in partners' equity -- Federal income tax basis and cash flow -- Federal income tax basis for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As more fully described in Note 1, these financial statements have been prepared on the accounting basis used for Federal income tax purposes which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and partners' equity of Sharon Woods, L. P., as of December 31, 1995 and its revenues and expenses, its changes in partners' equity and its cash flow for the year then ended, on the basis of accounting described in Note 1. /s/ ERNST & YOUNG LLP February 28, 1996 Greenville, South Carolina F-32 3681 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENT OF ASSETS, LIABILITIES, AND PARTNERS' EQUITY -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1995 ASSETS Cash: Unrestricted.............................................. $ 185,515 Tenant security deposits.................................. 37,903 $ 223,418 ---------- Account receivable.......................................... 2,746 Escrow deposits for taxes................................... 97,464 Restricted escrows.......................................... 214,787 Loan costs, net of accumulated amortization of $54,533...... 202,992 Syndication costs........................................... 181,742 Apartment property at cost (Note 2): Land...................................................... $ 858,808 Buildings and related personal property................... 5,781,520 ---------- Less accumulated depreciation............................. 6,640,328 (634,696) 6,005,632 ---------- ---------- $6,928,281 ========== LIABILITIES AND PARTNERS' EQUITY Liabilities: Accounts payable.......................................... $ 25,276 Tenant security deposits.................................. 38,514 Other liabilities......................................... 132,525 Long-term debt (Note 2)................................... 5,404,413 ---------- 5,600,728 Partners' equity............................................ 1,328,053 ---------- $6,928,781 ==========
See accompanying notes. F-33 3682 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENT OF REVENUES AND EXPENSES -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1995 Revenues: Rental income............................................. $1,404,221 Interest and other income................................. 122,060 ---------- 1,526,281 Expenses: Operating................................................. $ 486,138 Depreciation.............................................. 265,673 Interest.................................................. 487,394 Property taxes............................................ 104,178 Maintenance............................................... 214,015 Management fees paid to affiliate (Note 3)................ 77,630 Write-off of uncollectible accounts....................... 16,421 1,651,449 ---------- ---------- Excess expenses over revenues............................... $ (125,168) ==========
See accompanying notes. F-34 3683 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENT OF CHANGES IN PARTNERS' EQUITY -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1995
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- ---------- ---------- Equity at December 31, 1994............................... $188,997 $1,264,224 $1,453,221 Excess of expenses over revenues........................ (13,869) (111,299) (125,168) -------- ---------- ---------- Equity at December 31, 1995............................... $175,128 $1,152,925 $1,328,053 ======== ========== ==========
See accompanying notes. F-35 3684 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) STATEMENT OF CASH FLOW -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1995 Cash flows from operating activities Excess of expenses over revenues.......................... $(125,168) Adjustments to reconcile excess of expenses over revenues to net cash used in operating activities: Depreciation........................................... 265,673 Amortization of loan costs and mortgage discount....... 37,151 Write-off of uncollectible account..................... 16,421 Change in operating assets and liabilities: Tenant security deposits............................. (11,867) Escrow deposits for taxes............................ (12,240) Account receivable................................... (12,500) Other assets......................................... 3,859 Accounts payable..................................... (22,451) Tenant security deposit liabilities.................. 11,771 Other liabilities.................................... 7,625 --------- Net cash provided by operating activities......... 158,274 Cash flows from investing activities Property improvements and replacements.................... (190,865) Receipts from restricted escrows.......................... 33,256 Deposits to restricted escrows............................ (9,231) --------- Net cash used in investing activities............. (166,840) Cash flows from financing activities Principal payments on mortgage notes payable.............. (58,073) --------- Net decrease in cash........................................ (66,639) Cash at December 31, 1994................................... 252,154 --------- Cash at December 31, 1995................................... $ 185,515 ========= Supplemental disclosure of cash flow information Cash paid for interest expense............................ $ 432,317 =========
See accompanying notes. F-36 3685 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS DECEMBER 31, 1995 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The limited partnership was organized for the purpose of acquiring, owning and operating the Timber Ridge Apartments in Sharonville, Ohio. Forty-five units of limited partnership interests, an individual general partner interest, a limited partnership general partner interest, and a corporate general partner interest were issued. The Partnership shall terminate on July 1, 2015, unless terminated sooner, pursuant to the agreement. Basis of Accounting The Partnership's financial statements are prepared using the tax accrual method of accounting as set forth in the Federal income tax code and regulations. This method of accounting differs from generally accepted accounting principles primarily in the timing of recognition of revenue and certain expenses, recognition of certain costs of the Project, methods of depreciation and useful lives of assets and recognition and amortization of syndication costs. Apartment Properties Apartment properties are stated at cost. Depreciation is provided by the modified accelerated cost recovery system (MACRS) for 27.5 year residential property. Loan Costs Loan costs incurred with the financing of long-term debt are amortized on a straight-line basis over the life of the debt. Partnership Allocations Subject to possible adjustments required under Section 704(b) of the Internal Revenue Service Code, net earnings (loss) are allocated 88.92% to the limited partners and 11.08% to the general partners in accordance with the partnership agreement. Distributions of available cash (cash flow) or proceeds from financing or sale of the property are allocated among the limited and general partners in accordance with the partnership agreement. Income Taxes The financial statements include only those assets and liabilities and revenues and expenses which relate to the business of the Partnership. No provision has been made for Federal income taxes since such taxes are the personal responsibility of the partners. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determination by taxing authorities. Cash The Partnership considers only unrestricted cash and tenant security deposits to be cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. F-37 3686 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) Leases The Partnership generally leases apartment units for twelve-month terms or less. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease. Deposits are refunded when the tenant vacates the apartment if there has been no damage. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Syndication Costs Syndication costs are stated at cost to the Partnership and are not amortizable for Federal income tax purposes, but result in a capital loss upon the dissolution of the Partnership. 2. MORTGAGE NOTES PAYABLE Mortgage notes payable consist of the following: Mortgage note payable to Lexington Mortgage Company, secured by a deed of trust on the Timber Ridge apartments. This note bears interest at a rate of 7.83% per annum. Monthly installments of principal and interest of $39,769 are due through October 2003...................................... $5,321,362 Subordinated mortgage note payable to Lexington Mortgage Company bearing interest of 7.83% per annum. Monthly payments of interest only, totaling $1,098, are due through September 2003. Principal and remaining interest are due October 2003...................................... 168,300 ---------- 5,489,662 Unamortized discount, net of accumulated amortization of $24,751................................................... (85,249) ---------- $5,404,413 ==========
Principal maturities of mortgage notes payable at December 31, 1995 are as follows: 1996..................................................... $ 62,787 1997..................................................... 67,883 1998..................................................... 73,394 1999..................................................... 79,351 2000..................................................... 85,792 Thereafter............................................... 5,120,455 ---------- $5,489,662 ==========
The apartment property is pledged as collateral on the mortgage notes. F-38 3687 SHARON WOODS, L. P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS -- (CONTINUED) 3. TRANSACTIONS WITH AFFILIATED PARTIES In January 1991, the Partnership entered into a management contract with Insignia Management Group, an affiliate of Insignia Financial Group, Inc., ("Insignia") who is an affiliate of the managing general partner of Sharon Woods, L. P. As a result, affiliates of Insignia now provide property management and asset management services to the Partnership. The following items were incurred with Insignia and its affiliates in 1995: Property management fees.................................... $77,630 Reimbursement for investor services, asset management and partnership accounting.................................... 36,650
4. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-39 3688 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 3689 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 3690 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 September , 1998 A-3 3691 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF SNOWDEN VILLAGE 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 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 3692 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 Snowden Village Associates, 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 3693
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
ii 3694 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 Snowden Village Associates, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 3695 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 3696 - 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 $3,375 per unit for the six months ended June 30, 1998 (equivalent to $6,750 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 distributions of $ 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 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 3697 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 3698 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 100% of 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? 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: 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 3699 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 3700 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. 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. 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 5 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. 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 S-7 3701 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 3702 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 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 S-9 3703 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 3704 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, 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. 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 S-11 3705 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 51% of the units of your partnership. In the absence of such consent, your only 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 S-12 3706 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. 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." S-13 3707 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 3708 - 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 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 3709 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 3710 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 3711 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 is not subject to such limitations. 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 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 generated in that capacity from your partnership. The property manager received management fees of $82,069 in 1996, $82,982 in 1997 and $21,144 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 Your Partnership and its Property. Snowden Village Associates, L.P. is a Delaware limited partnership which was formed on June 21, 1985 for the purpose of owning and operating a single apartment property located in Fredericksburg, Virginia, known as "Snowden Village Apartments I" and "Snowden Village Apartments II". In 1985, it completed a private placement of units that raised net proceeds of approximately $2,745,000. Snowden Village Apartments I consists of 132 apartment units and Snowden Village Apartments II consists of 122 apartment units. Your partnership has no employees. S-18 3712 Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2020, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding on "Snowden Village Apartments I" of $2,513,592 payable to Maine Midland Bank and Bank of America, which bears interest at a rate of 7.60%. Such mortgage debt is due November 2002. There is also a mortgage note on "Snowden Village Apartments II," the balance of which is $2,692,677, as of June 30, 1998. The note is payable to WMF Huntoon Page, bears interest at 7.50% and is due September 2020. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loans outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 3713 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 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) 9 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 3714
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 3715 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 3716
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 3717 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 3718 SUMMARY FINANCIAL INFORMATION OF SNOWDEN VILLAGE ASSOCIATES, L.P. The summary financial information of Snowden Village Associates, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Snowden Village Associates, L.P. for the years ended December 31, 1997 and 1996, 1995, 1994 and 1993 is based on 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 of Your Partnership" included herein. See "Index to Financial Statements." SNOWDEN VILLAGE ASSOCIATES, L.P.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... $ 940,747 $ 802,707 $ 1,690,023 $ 1,678,297 $ 1,738,901 $ 1,707,106 $ 858,804 Net Income/(Loss)............ 192,598 65,961 23,975 160,121 (133,890) (242,565) (34,027) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... 2,681,992 2,712,433 2,694,084 2,790,572 2,854,705 3,136,619 1,823,957 Total Assets................. 3,515,749 3,488,978 3,430,594 3,461,869 3,453,819 3,660,793 2,093,256 Mortgage Notes Payable, including Accrued Interest................... 5,208,579 5,313,311 5,245,901 5,370,653 5,463,062 5,548,221 2,721,101 Partners' Capital/(Deficit).......... $(1,787,044) $(1,937,656) $(1,979,642) $(2,003,117) $(2,113,738) $(1,979,848) $ (713,174)
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 YOUR 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
S-25 3719 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. 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 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 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. S-26 3720 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 Code. 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 therefore 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 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. 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 S-27 3721 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 $3,375 per unit (equivalent to $6,750 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 an 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 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. 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. S-28 3722 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 3723 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 51% of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. S-30 3724 - 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 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 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 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 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 3725 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 3726 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 3727 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. 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. S-34 3728 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." 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. 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. S-35 3729 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, (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, by 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 9:00 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 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, Denver, Colorado time. S-36 3730 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 3731 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. 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, which change, 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 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 S-38 3732 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 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 S-39 3733 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 3734 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. 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. 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-41 3735 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-42 3736 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 payment. 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 OP Units and any such S-43 3737 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-44 3738 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-45 3739 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-46 3740 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-47 3741 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-48 3742 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-49 3743 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 3744 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-51 3745 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 3746 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 3747 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 3748 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 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, a third party expert, 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 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 $3,375 per unit (equivalent to $6,750 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-55 3749 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-56 3750 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 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. S-57 3751 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 3752 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 September 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 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 property was 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, S-59 3753 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 3754 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Snowden Village Apartments I and Snowden Partnership owns interests (either directly or through Village Apartments II. 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 Available 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 2020. 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 purchase, hold, The purpose of the AIMCO Operating Partnership is to lease, manage and operate your partnership's property. conduct any business that may be lawfully conducted by Subject to restrictions contained in your partnership's a limited partnership organized pursuant to the agreement of limited partnership, your partnership may Delaware Revised Uniform Limited Partnership Act (as perform all act necessary or appropriate in connection amended from time to time, or any successor to such therewith and reasonably related thereto, including statute) (the "Delaware Limited Partnership Act"), 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-61 3755 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 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. 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 contracts to be entered into with the funds or other assets to its subsidiaries or other general partner and its affiliates and the compensation persons in which it has an equity investment, and such to be paid under such contracts. In addition, the persons may borrow funds from the AIMCO Operating general partner may loan your partnership such Partnership, on terms and conditions established in the additional sums as the general partner deems sole and absolute discretion of the general partner. To appropriate and necessary for the conduct of your the extent consistent with the business purpose of the partnership's business. Such loans by the general AIMCO Operating Partnership and the permitted partner or its affiliates will be upon such terms and activities of the general partner, the AIMCO Operating for such maturities as the general partner deems Partnership may transfer assets to joint ventures, reasonable and, except in limited circumstances, will limited liability companies, partnerships, bear interest at a rate the greater of 2 1/2% over the corporations, business trusts or other business base rate then being charged by Third National Bank in entities in which it is or thereby becomes a Nashville, Nashville, Tennessee or the actual cost to participant upon such terms and subject to such such lender to borrow such funds and the terms thereof, conditions consistent with the AIMCO Operating Part- as to security and other charges or fees, will be at nership Agreement and applicable law as the general least as favorable to your partnership as those partner, in its sole and absolute discretion, believes negotiated by unaffiliated lenders on comparable loans to be advisable. Except as expressly permitted by the for the same purpose in the same locale. 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 in the ordinary course of business and restrictions on borrowings, and the general partner has in connection with certain loans specified in your full power and authority to borrow money on behalf of partnership's agreement of limited partnership, which the AIMCO Operating Partnership. The AIMCO Operating include loans secured by your partnership's property. Partnership has credit agreements that restrict, among However, except for such loans specified in your part- other things, its ability to incur indebtedness. See nership's agreement of limited partnership, the limited "Risk Factors -- Risks of Significant Indebtedness" in partners owning 51% of the outstanding units must the accompanying Prospectus. approve the mortgaging of all or substantially all of the assets of your partnership and, in any case, the general partner may not incur any indebtedness pursuant to a non-recourse loan if the creditor will have or acquire, at any time, as a result of the making of the loan, any direct or indirect interest in the profits, capital or property of your partnership other than as a secured creditor.
S-62 3756 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 the limited partners to have access to the with a statement of the purpose of such demand and at current list of the names and addresses of all limited such OP Unitholder's own expense, to obtain a current partner at the principal office of the general partner list of the name and last known business, residence or in Tennessee at all reasonable times. mailing address of the general partner and each other OP Unitholder.
Management Control The management and control of your partnership and its All management powers over the business and affairs of business and affairs rest exclusively with the general the AIMCO Operating Partnership are vested in AIMCO-GP, partner, which has all the rights and power which may Inc., which is the general partner. No OP Unitholder be possessed by a general partner pursuant to has any right to participate in or exercise control or applicable law or are necessary, advisable or conve- management power over the business and affairs of the nient to the discharge of its duties under your AIMCO Operating Partnership. The OP Unitholders have partnership's agreement of limited partnership. Limited the right to vote on certain matters described under partners may not take part in or interfere with any "Comparison of Ownership of Your Units and AIMCO OP with the conduct or control of the business of your Units -- Voting Rights" below. The general partner may partnership and have no right or authority to act for not be removed by the OP Unitholders with or without or bind your partnership in any manner, except that cause. limited partners may exercise the voting and other rights provided in your partnership's agreement of In addition to the powers granted a general partner of limited partnership and under applicable 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, the general partner of your partnership is the AIMCO Operating Partnership Agreement, the general not liable to your partnership or any limited partner partner is not liable to the AIMCO Operating for any acts or failures to do any act performed by it Partnership for losses sustained, liabilities incurred in the absence of its willful malfeasance or gross or benefits not derived as a result of errors in negligence. Your partnership's agreement of limited judgment or mistakes of fact or law of any act or partnership does not provide for indemnification of the omission if the general partner acted in good faith. general partner by your partnership for any acts or The AIMCO Operating Partnership Agreement provides for omissions performed by it. indemnification of AIMCO, or any director or officer of AIMCO (in its capacity as the previous general partner of the AIMCO Operating Partnership), the general partner, any officer or director of general partner or the AIMCO Operating Partnership and such other persons as the general partner may designate from and against all losses, claims, damages, liabilities, joint or several, expenses (including legal fees), fines, settlements and other amounts incurred in connection with any actions relating to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO Operating Partnership Agreement. The Delaware 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
S-63 3757 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 for cause after giving notice to such general affairs of the AIMCO Operating Partnership. The general partner upon a vote of the limited partners owning at partner may not be removed as general partner of the least 67% of the outstanding units. A general partner AIMCO Operating Partnership by the OP Unitholders with may resign with the approval of the limited partners or without cause. Under the AIMCO Operating Partnership owning at least 67% of the outstanding units upon the Agreement, the general partner may, in its sole giving of notice to any remaining general partner and discretion, prevent a transferee of an OP Unit from the limited partners. All the limited partners must becoming a substituted limited partner pursuant to the approve the election of a substitute general partner. A AIMCO Operating Partnership Agreement. The general limited partner may not transfer his interests without partner may exercise this right of approval to deter, the written consent of the general partner which may be delay or hamper attempts by persons to acquire a withheld at the sole discretion of the general partner. 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 to add in the AIMCO Operating Partnership Agreement, whereby representations, duties or obligations of the general the general partner may, without the consent of the OP partner or affiliates or surrender any right or power Unitholders, amend the AIMCO Operating Partnership granted to the general partner or its affiliates in Agreement, amendments to the AIMCO Operating your partnership's agreement of limited partnership for Partnership Agreement require the consent of the the benefit of the limited partners, to cure any holders of a majority of the outstanding Common OP ambiguity, to correct or supplement any provision which Units, excluding AIMCO and certain other limited may be inconsistent with any other provision provided exclusions (a "Majority in Interest"). Amendments to that the general partner receives an opinion of counsel the AIMCO Operating Partnership Agreement may be that such amendment does not adversely affect the proposed by the general partner or by holders of a rights of the limited partners and to admit additional Majority in Interest. Following such proposal, the or substituted limited partners. Any other amendments general partner will submit any proposed amendment to to your partnership's agreement of limited partnership the OP Unitholders. The general partner will seek the must be approved by the limited partners owning 67% of written consent of the OP Unitholders on the proposed the units. The general partner must submit a written amendment or will call a meeting to vote thereon. See statement of the proposed amendment together with its "Description of OP Units -- Amendment of the AIMCO recommendation as to such proposed amendment. For the Operating Partnership Agreement" in the accompanying purposes of obtaining the consent of the limited Prospectus. partners, the general partner may require responses within a specified time, which may not be less than 30 days, and failure to respond in such time will constitute a vote which is consistent with the general partner's recommendation with respect to such proposal.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to compensation for additional services nership is responsible for all expenses incurred rendered. 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-64 3758 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, except as provided under applicable law, a negligence, no OP Unitholder has personal liability for limited partner is not bound by or personally liable the AIMCO Operating Partnership's debts and for the expenses, liabilities or obligations of your obligations, and liability of the OP Unitholders for partnership in excess of such limited partner's capital the AIMCO Operating Partnership's debts and obligations contribution, including deferred payment to be made by is generally limited to the amount of their invest- such limited partner for its units, and any mandatory ment in the AIMCO Operating Partnership. However, the assessments provided for in your partnership's limitations on the liability of limited partners for agreement of limited partnership which may be levied the obligations of a limited partnership have not been against those limited partners who do not pay for clearly established in some states. If it were issued units entirely in cash. 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 manage and partnership agreement, Delaware law generally requires control your partnership, its business and affairs to a general partner of a Delaware limited partnership to the best of its abilities and must use its best efforts adhere to fiduciary duty standards under which it owes to carry out the business of your partnership. The its limited partners the highest duties of good faith, general partner must devote itself to the business of fairness and loyalty and which generally prohibit such your partnership to the extent that it, in its general partner from taking any action or engaging in discretion, deems necessary for the efficient carrying any transaction as to which it has a conflict of on thereof. The general partner must act as a fiduciary interest. The AIMCO Operating Partnership Agreement with respect to the safekeeping and use of the funds expressly authorizes the general partner to enter into, and assets of your partnership. However, the general on behalf of the AIMCO Operating Partnership, a right partner may engage in whatever activities it chooses, of first opportunity arrangement and other conflict whether or not the same be competitive with your avoidance agreements with various affiliates of the partnership, without having or incurring any obligation AIMCO Operating Partnership and the general partner, on to offer any interest in such activities to your such terms as the general partner, in its sole and partnership or any limited partner. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 3759 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 COMMON OP UNITS PREFERRED 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, the vote of applicable law or in the AIMCO ship Agreement, the OP Unitholders the limited partners owning 51% of Operating Partnership Agreement, have voting rights only with the outstanding units is necessary the holders of the Preferred OP respect to certain limited matters to change the nature of your Units will have the same voting such as certain amendments and partnership's business and approve rights as holders of the Common OP termination of the AIMCO Operating or disapprove the sale of all or Units. See "Description of OP Partnership Agreement and certain substantially all of the assets of Units" in the accompanying transactions such as the your partnership. The consent of Prospectus. So long as any institution of bankruptcy the holders of at least 67% of the Preferred OP Units are outstand- proceedings, an assignment for the outstanding units is required to ing, in addition to any other vote benefit of creditors and certain remove a general partner, amend or consent of partners required by transfers by the general partner of your partnership's agreement of law or by the AIMCO Operating its interest in the AIMCO Operating limited partnership Partnership Agree- Part-
S-66 3760 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS and to dissolve your partnership ment, the affirmative vote or nership or the admission of a before its term expires. All consent of holders of at least 50% successor general partner. limited partners must approve the of the outstanding Preferred OP election of a substitute general Units will be necessary for Under the AIMCO Operating Partner- partner. effecting any amendment of any of ship Agreement, the general partner the provisions of the Partnership has the power to effect the Unit Designation of the Preferred acquisition, sale, transfer, OP Units that materially and exchange or other disposition of 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 operation, sales or refinancing, is Operating Partnership, quarterly partner to cause the AIMCO to be shared among the partners. cash distributions at the rate of Operating Partnership to dis- Distributions of the Available Cash $ per Preferred OP Unit; tribute quarterly all, or such Flow will be made in semiannual provided, however, that at any time portion as the general partner may installments within 45 days after and from time to time on or after in its sole and absolute discretion such period or at such time or the fifth anniversary of the issue determine, of Available Cash (as times as the general partner deems date of the Preferred OP Units, the defined in the AIMCO Operating practical. 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. Your of five years, and (ii) the annual established by the general partner partnership has made distributions dividend rate on the most recently with respect to such quarter, in in the past and is projected to issued AIMCO non-convertible accordance with their respective made distributions in 1998. 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-67 3761 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 and such Preferred OP Units and the OP Units. The AIMCO Operating Part- transferee will become a Preferred OP Units are not listed nership Agreement restricts the substituted limited partner if: (1) on any securities exchange. The transferability of the OP Units. the transfer is not in respect of Preferred OP Units are subject to Until the expiration of one year fractional units, except in limited restrictions on transfer as set from the date on which an OP circumstances, (2) the assignor and forth in the AIMCO Operating Unitholder acquired OP Units, assignee execute, acknowledge and Partnership Agreement. subject to certain exceptions, such deliver instruments of transfer OP Unitholder may not transfer all satisfactory to the general Pursuant to the AIMCO Operating or any portion of its OP Units to partners, (3) the transferor pays Partnership Agreement, until the any transferee without the consent the transfer fee, (4) the general expiration of one year from the of the general partner, which partner consents, which consent date on which a holder of Preferred consent may be withheld in its sole will be withheld if, among other OP Units acquired Preferred OP and absolute discretion. After the reasons, (5) the transfer vio- Units, subject to certain expiration of one year, such OP lates Federal or state securities exceptions, such holder of Unitholder has the right to laws or results in the termination Preferred OP Units may not transfer transfer all or any portion of its of your partnership for tax all or any portion of its Pre- OP Units to any person, subject to purposes and (6) the assignor and ferred OP Units to any transferee the satisfaction of certain assignee have complied with such without the consent of the general conditions specified in the AIMCO other conditions as set forth in partner, which consent may be Operating Partnership Agreement, your partnership's agreement of withheld in its sole and absolute including the general partner's limited partnership. discretion. After the expiration of right of first refusal. See one year, such holders of Preferred "Description of OP Units -- There are no redemption rights OP Units has the right to transfer Transfers and Withdrawals" in the associated with your units. all or any portion of its Preferred accompanying Prospectus. OP Units to any person, subject to the satisfaction of
S-68 3762 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 3763 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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 own 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 partners but may receive reimbursement for expenses generated in that capacity from your partnership. The property manager received management fees of $82,069 in 1996, $82,982 in 1997 and $21,144 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-70 3764 YOUR PARTNERSHIP GENERAL Snowden Village Associates, L.P. is a Delaware limited partnership which raised net proceeds of approximately $2,745,000 in 1985 through a private offering. The promoter for the private offering of your partnership was Jacques-Miller. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 73 limited partners of your partnership and a total of 44 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on June 21, 1985 for the purpose of owning and operating a single apartment property located in Fredericksburg, Virginia, known as "Snowden Village Apartments I" and "Snowden Village Apartments II." "Snowden Village Apartments I" consists of 132 apartment units. There are 52 one-bedroom apartments and 80 two-bedroom apartments. The total rentable square footage is 116,568 square feet. The average annual rent per apartment unit is $5,975. In both 1996 and 1997, the average occupancy rate was 96.97%. There are 132 apartment units in "Snowden Village Apartments II." The total rentable square footage is 93,660 square feet and the average annual rent per apartment unit is $5,829. The average occupancy rate for 1996 and 1997 was 91.80%. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $82,069, $82,982 and $21,144, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2020 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 3765 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding on "Snowden Village Apartments I" of $2,513,592 payable to Marine Midland Bank and Bank of America, which bears interest at a rate of 7.60%. Such mortgage debt is due November 2002. There is also a mortgage note on "Snowden Village Apartments II," the balance of which is $2,692,677, as of June 30, 1998. The note is payable to WMF Huntoon Paige, bears interest at 7.50% and is due September 2020. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 3766 Below is selected financial information for Snowden Village Associates, L.P. taken from the financial statements described above. See "Index to Financial Statements."
SNOWDEN VILLAGE ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 507,684 $ 424,583 $ 367,499 $ 356,261 $ 279,824 $ 203,635 $ 11,479 Land & Building.............. 8,756,470 8,564,759 8,655,939 8,530,275 8,377,071 8,209,620 3,557,004 Accumulated Depreciation..... (6,074,478) (5,852,326) (5,961,855) (5,739,703) (5,522,366) (5,073,001) (1,733,047) Other Assets................. 326,073 351,962 369,011 315,036 319,290 320,539 257,820 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 3,515,749 $ 3,488,978 $ 3,430,594 $ 3,461,869 $ 3,453,819 $ 3,660,793 $ 2,093,256 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... $ 5,208,575 $ 5,313,311 $ 5,245,901 $ 5,370,653 $ 5,463,062 $ 5,548,221 $ 2,721,101 Other Liabilities............ 94,218 113,323 164,335 94,333 104,495 92,420 85,329 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 5,302,793 5,426,634 5,410,236 5,464,986 5,567,557 5,640,641 2,806,430 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $(1,787,044) $(1,937,656) $(1,979,642) $(2,003,117) $(2,113,738) $(1,979,848) $ (713,174) =========== =========== =========== =========== =========== =========== ===========
SNOWDEN VILLAGE ASSOCIATES, L.P. ---------------------------------------------------------------------------------- FOR THE SIX MONTHS FOR THE YEARS ENDED ENDED JUNE 30, DECEMBER 31, ------------------- ------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 -------- -------- ---------- ---------- ---------- ---------- -------- STATEMENT OF OPERATIONS DATA Rental Revenue..................... $855,166 $695,977 $1,505,593 $1,538,427 $1,589,569 $1,534,351 $745,148 Other Income....................... 85,581 106,730 184,430 139,870 149,332 172,755 113,656 -------- -------- ---------- ---------- ---------- ---------- -------- Total Revenue............. 940,747 802,707 1,690,023 1,678,297 1,738,901 1,707,106 858,804 -------- -------- ---------- ---------- ---------- ---------- -------- Operating Expenses*................ 348,850 340,289 859,638 733,274 836,886 686,345 587,467 General & Administrative*.......... 30,966 23,147 34,555 25,443 35,626 228,802 23,638 Depreciation....................... 112,623 112,623 225,245 217,337 449,365 512,030 Interest Expense................... 208,050 215,755 457,715 453,236 460,485 433,316 223,992 Property Taxes..................... 47,660 44,932 88,895 88,886 90,429 89,178 57,734 -------- -------- ---------- ---------- ---------- ---------- -------- Total Expenses............ 748,149 736,746 1,666,048 1,518,176 1,872,791 1,949,671 892,831 -------- -------- ---------- ---------- ---------- ---------- -------- Net Income (Loss).................. $192,598 $ 65,961 $ 23,975 $ 160,121 $ (133,890) $ (242,565) $(34,027) ======== ======== ========== ========== ========== ========== ========
S-73 3767 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $192,598 for the six months ended June 30, 1998, compared to $65,961 for the six months ended June 30, 1997. The increase in net income of $126,637, or 191.99% was primarily the result of a increase in rental revenue. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $940,747 for the six months ended June 30, 1998, compared to $802,707 for the six months ended June 30, 1997, an increase of $138,040, or 17.20%. This was primarily a result of a increased occupancy due to management's increased efforts and incentives offered to boost leasing traffic. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $348,850 for the six months ended June 30, 1998, compared to $340,289 for the six months ended June 30, 1997, an increase of $8,561 or 2.52%. Management expenses totaled $21,144 for the six months ended June 30, 1998, compared to $19,027 for the six months ended June 30, 1997, a increase of $2,117, or 11.13%. The increase resulted from a increase in rental revenues as management fees are calculated based on a percentage of revenues. General and Administrative Expenses General and administrative expenses totaled $30,966 for the six months ended June 30, 1998 compared to $23,147 for the six months ended June 30, 1997, an increase of $7,819 or 33.78%. The increase is primarily due to an increase in asset management fees, taxes and licences, and general partner reimbursement fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $208,050 for the six months ended June 30, 1998, compared to $215,755 for the six months ended June 30, 1997, a decrease of $7,705, or 3.57%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $23,975 for the year ended December 31, 1997, compared to $160,121 for the year ended December 31, 1996. The decrease in net income of $136,146, or 85.03% was primarily the result of an increase in operating expenses in 1997. These factors are discussed in more detail in the following paragraphs. S-74 3768 Revenues Rental and other property revenues from the partnership's property totaled $1,690,023 for the year ended December 31, 1997, compared to $1,678,297 for the year ended December 31, 1996, an increase of $11,726, or 0.70%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $859,639 for the year ended December 31, 1997, compared to $733,274 for the year ended December 31, 1996, an increase of $126,365 or 17.23%. This increase was primarily the result of an increase in maintenance expenses at both properties and an increase in property administration expenses. Management expenses totaled $82,982 for the year ended December 31, 1997, compared to $82,069 for the year ended December 31, 1996, an increase of $913, or 1.11%. General and Administrative Expenses General and administrative expenses totaled $34,555 for the year ended December 31, 1997 compared to $25,443 for the year ended December 31, 1996, an increase of $9,112 or 35.81%. The increase is primarily due to an increase in property administration (salaries, supplies) expenses at Snowden Village II. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $457,715 for the year ended December 31, 1997, compared to $453,236 for the year ended December 31, 1996, an increase of $4,479, or 0.99%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $160,121 for the year ended December 31, 1996, compared to a net loss of $133,890 for the year ended December 31, 1995. The increase in net income of $294,011 was primarily the result of a decrease in operating and interest expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,678,297 for the year ended December 31, 1996, compared to $1,738,901 for the year ended December 31, 1995, a decrease of $60,604, or 3.49%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $733,274 for the year ended December 31, 1996, compared to $836,886 for the year ended December 31, 1995, a decrease of $103,612 or 12.38%. This decrease was primarily a result of reduced advertising, utilities, and maintenance materials expenses. Management expenses totaled $82,069 for the year ended December 31, 1996, compared to $86,362 for the year ended December 31, 1995, a decrease of $4,293, or 4.97%. General and Administrative Expenses General and administrative expenses totaled $25,443 for the year ended December 31, 1996 compared to $35,626 for the year ended December 31, 1995, a decrease of $10,183 or 28.58%. The decrease is primarily due to reduced general partner reimbursements. S-75 3769 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $453,236 for the year ended December 31, 1996, compared to $460,485 for the year ended December 31, 1995, a decrease of $7,249, or 1.57%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $507,684 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 to your partnership or any limited partner for any acts or failures to do any act performed by it in the absence of its willful malfeasance or gross negligence. 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 owned by AIMCO. See "Conflicts of Interest". Your partnership's agreement of limited partnership does not provide for indemnification of the general partners by your partnership for any acts or omissions performed by them. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $62,386.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 0 1995........................................................ 0 1996........................................................ 1,125 1997........................................................ 0 1998 (through June 30)...................................... 3,375
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). S-76 3770 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................... $ 5,856 1995........................................... 46,910 1996........................................... 37,461 1997........................................... 53,114 1998 (through June 30).........................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $86,362 1996........................................... 82,069 1997........................................... 82,982 1998 (through June 30)......................... 21,144
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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Stanger's Fees.............................................. $ Printing Fees............................................... $ Other....................................................... $
S-77 3771 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 Snowden Village Associates, L.P. at December 31, 1997 and for the year then ended, appearing in this Prospectus Supplement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-78 3772 SNOWDEN VILLAGE ASSOCIATES, L. P. INDEX FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (Unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (Unaudited)........................ F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (Unaudited)........................ F-4 Note A -- Basis of Presentation............................. F-5 Independent Auditors' Report................................ F-6 Balance Sheet as of December 31, 1997....................... F-7 Statement of Operations for the year ended December 31, 1997...................................................... F-8 Statement of Partners' Deficit for the year ended December 31, 1997.................................................. F-9 Statement of Cash Flows for the year ended December 31, 1997...................................................... F-10 Notes to Financial Statements............................... F-11 Balance Sheet as of December 31, 1996 (Unaudited)........... F-16 Statement of Operations for the year ended December 31, 1996 (Unaudited)............................................... F-17 Statement of Partners' Deficit for the year ended December 31, 1996 (Unaudited)...................................... F-18 Statement of Cash Flows for the year ended December 31, 1996 (Unaudited)............................................... F-19 Notes to Financial Statements............................... F-20 Balance Sheet as of December 31, 1995 (Unaudited)........... F-23 Statement of Operations for the year ended December 31, 1995 (Unaudited)............................................... F-24 Statement of Partners' Deficit for the year ended December 31, 1995 (Unaudited)...................................... F-25 Statement of Cash Flows for the year ended December 31, 1995 (Unaudited)............................................... F-26 Notes to Financial Statements............................... F-27
F-1 3773 SNOWDEN VILLAGE ASSOCIATES, L. P. CONDENSED BALANCE SHEET JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 507,684 Receivables and Deposits and Other assets................... 326,073 Investment Property: Land...................................................... $ 465,000 Buildings and related personal property................... 8,291,470 ----------- 8,756,470 Accumulated depreciation.................................. (6,074,478) 2,681,992 ----------- ----------- Total Assets...................................... $ 3,515,749 =========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable and Other liabilities...................... $ 120,511 Notes Payable............................................... 5,182,282 -- Partners' Deficit........................................... (1,787,044) ----------- Total Liabilities and Partners' Deficit........... $ 3,515,749 ===========
F-2 3774 SNOWDEN VILLAGE ASSOCIATES, L. P. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------- 1998 1997 ----------- ----------- Revenues: Rental Income............................................. $855,166 $695,977 Other Income.............................................. 85,581 106,730 (Gain) Loss on Disposition of Property.................... -- -- Casualty Gain/Loss........................................ -- -- -------- -------- Total Revenues.................................... 940,747 802,707 Expenses: Operating Expenses........................................ 348,850 340,289 General and Administrative Expenses....................... 30,966 23,147 Depreciation Expense...................................... 112,623 112,623 Interest Expense.......................................... 208,050 215,755 Property Tax Expense...................................... 47,660 44,932 -------- -------- Total Expenses.................................... 748,149 736,746 Income (Loss) from Operations............................... $192,598 $ 65,961 Extraordinary Gain on Early Extinguishment of Debt.......... -- -- Loss on Sale of Investment Property......................... -- -- Casualty Gain............................................... -- -- -------- -------- Net (Income) Loss................................. $192,598 $ 65,961 ======== ========
F-3 3775 SNOWDEN VILLAGE ASSOCIATES, L. P. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------- 1998 1997 ------------ ----------- Operating Activities: Net Income (loss)......................................... $ 192,598 $ 65,961 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 112,623 112,623 Changes in accounts: Receivables and Deposits............................. 52,703 (26,668) Accounts payable..................................... (43,824) 18,990 --------- -------- Net cash provided by (used in) operating activities...................................... 314,100 170,906 --------- -------- Investing Activities Property improvements and replacements.................... (100,531) (34,484) Net (increase)/decrease in restricted escrows..... (9,765) (10,258) --------- -------- Net cash provided by (used in) investing activities...................................... (110,296) (44,742) --------- -------- Financing Activities Payments on mortgage...................................... (63,619) (57,342) Partners' Distributions................................... -- (500) --------- -------- Net cash provided by (used in) financing activities...................................... (63,619) (57,842) --------- -------- Net increase (decrease) in cash and cash equivalents..................................... 140,185 68,322 Cash and cash equivalents at beginning of year.............. 367,499 356,261 --------- -------- Cash and cash equivalents at end of period.................. $ 507,684 $424,583 ========= ========
F-4 3776 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Snowden Village Associates, L. P. as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with the accounting basis for Federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis for Federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 3777 REPORT OF INDEPENDENT AUDITORS The Partners Snowden Village Associates, L. P. We have audited the accompanying balance sheet of Snowden Village Associates, L. P. as of December 31, 1997, and the related statements of operations, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Snowden Village Associates, L. P. at December 31, 1997, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP -------------------------------------- September 1, 1998 Greenville, South Carolina F-6 3778 SNOWDEN VILLAGE ASSOCIATES, L. P. BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 368 Receivables and deposits.................................... 90 Restricted escrows.......................................... 193 Deferred charges, net of amortization of $93................ 65 Other assets................................................ 21 Apartment property, at cost (Notes A and B): Land...................................................... $ 465 Building and improvements................................. 8,191 ------- 8,656 Less accumulated depreciation............................. (5,962) 2,694 ------- ------ $3,431 ====== LIABILITIES AND PARTNERS' DEFICIT Liabilities Accounts payable.......................................... $ 42 Tenant security deposits payable.......................... 59 Accrued property taxes.................................... 19 Accrued interest payable.................................. 26 Other liabilities......................................... 19 Mortgage note payable (Notes B and C)..................... 5,246 ------ 5,411 Partners' deficit: General partners.......................................... $ (58) Limited partners (44 units issued and outstanding)........ (1,922) (1,980) ------- ------ $3,431 ======
See accompanying notes. F-7 3779 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT UNIT DATA) Revenues: Apartment rentals......................................... $ 1,506 Other income.............................................. 184 1,690 Expenses: Operating................................................. $863 General and Administrative................................ 34 Depreciation.............................................. 222 Interest (Note C)......................................... 458 Property taxes............................................ 89 1,666 ---- ------- Net income.................................................. $ 24 ======= Net income allocated to General Partners (1%)............... $ 1 Net income allocated to Limited Partners (99%).............. 23 ------- $ 24 ======= Net income per limited partnership unit..................... $544.91 =======
See accompanying notes. F-8 3780 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GENERAL LIMITED PARTNER PARTNER TOTAL ------- ------- ------- Deficit at December 31, 1996................................ $(58) $(1,945) $(2,003) Distributions............................................. (1) 0 (1) Net income................................................ 1 23 24 ---- ------- ------- Deficit at December 31, 1997................................ $(58) $(1,922) $(1,980) ==== ======= =======
See accompanying notes. F-9 3781 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net income................................................ $ 24 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 222 Amortization........................................... 35 Changes in assets and liabilities: Receivables and deposits............................. (18) Other assets......................................... 10 Accounts payable..................................... 18 Security deposits payable............................ 18 Other liabilities.................................... 9 ----- Net cash provided by operating activities................. 318 Cash flows from investing activities Property improvements and replacements.................... (125) Change in reserve escrows................................. (20) ----- Net cash used in investing activities..................... (145) Cash flows from financing activities Principal payments on mortgage note payable............... (118) Distributions to Partners................................. (1) ----- Net cash used in financing activities..................... (119) ----- Increase in cash and cash equivalents..................... 54 Cash and cash equivalents at December 31, 1996............ 314 ----- Cash and cash equivalents at December 31, 1997............ $ 368 ===== Supplemental disclosure of cash flow information Cash paid for interest.............................................. $ 411 =====
See accompanying notes. F-10 3782 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- SIGNIFICANT ACCOUNTING POLICIES Organization Snowden Village Associates, L. P. (the "Partnership") is a Delaware limited partnership which began operations in 1985 with the purchase of property and improvements in Fredericksburg, Virginia, presently operating as two apartment complexes. The two projects consist of Phase I, a conventional apartment complex, and Phase II, a complex regulated under Section 221(d)4 of the National Housing Act. The general partners of the Partnership are Jacques Miller Associates and Jacques Miller, Inc. (collectively, the "General Partners"). Investment Property The investment property is stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were necessary for the year ended December 31, 1997. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Risks/Uncertainties The real estate business is highly competitive. The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and the Partnership is not a significant factor in its industry. In addition, various limited partnerships have been formed by related parties to engage in business which may be competitive with the Partnership. Cash and Cash Equivalents Cash on hand and in banks, and money market funds and certificates of deposit with original maturities of three months or less are considered to be unrestricted cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits Tenant security deposits required from lessees for the duration of the lease as required by the Partnership are included in receivables and deposits. These deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Fair Value The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying value. F-11 3783 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Loan Costs Loan costs of approximately $63,000, net of accumulated amortization of approximately $64,000, are being amortized on a straight-line basis over the life of the loan. Unamortized loan costs are included in deferred charges. Partnership Allocations Net earnings or loss, distributions to partners, and taxable income or loss are allocated to the partners in accordance with the partnership agreement. Leases The Partnership generally leases apartment units for twelve-month terms or less. Rental revenue is recognized as earned. Advertising Costs Advertising costs of approximately $34,000 in 1997 were charged to expense as incurred and are included in operating expenses. Depreciation Building and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 4 to 25 years. Restricted Escrows Restricted escrows consist of funds established to cover necessary repairs and replacements of existing improvements at the property. The balance in the restricted escrow account at December 31, 1997 was approximately $193,000. Income Taxes No provision has been made for Federal and state income taxes since such taxes are the personal responsibility of the partners. NOTE B -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ----------- ------------- Snowden Village Phase I.......................... $2,643 $242 $3,093 $622 Snowden Village Phase II......................... 5,359 223 4,116 360 ------ ---- ------ ---- Totals........................................... $8,002 $465 $7,209 $982 ====== ==== ====== ====
F-12 3784 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS ----------- ---- ----------- ------ ------------ -------- ------------- Snowden Village Phase I............................. $242 $3,715 $3,957 $2,710 1985 4-25 Snowden Village Phase II............................ 223 4,476 4,699 3,252 1985 5-25 ---- ------ ------ ------ Totals.............................................. $465 $8,191 $8,656 $5,962 ==== ====== ====== ======
Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): Investment Property Balance at beginning of year............ $8,530 Property improvements..................................... 126 ------ Balance at end of year.................................... $8,656 ====== Accumulated Depreciation Balance at beginning of year....... $5,740 Additions charged to expense.............................. 222 ------ Balance at end of year.................................... $5,962 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $8,669,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $5,726,000. NOTE C -- MORTGAGE NOTES PAYABLE The principal terms of the mortgage note payable are as follows (in thousands):
MONTHLY PRINCIPAL PAYMENT STATED PRINCIPAL BALANCE AT INCLUDING INTEREST MATURITY BALANCE DUE DECEMBER 31, PROPERTY INTEREST RATE DATE AT MATURITY 1997 -------- --------- -------- -------- ----------- ------------ Snowden Village I 1st mortgage........................... $23 7.60% 11/1/02 $2,082 $2,554 2nd mortgage*.......................... 1 7.60% 11/1/02 89 89 --- ------ 24 2,643 Snowden Village II....................... $21 7.50% 9/1/20 $ 181 2,716 ------ 5,359 Less unamortized present value discounts at 8.76%............................... 113 ------ $5,246 ======
- --------------- * Interest-only payments The mortgages encumbering Snowden Village I and Snowden Village II are non-recourse and are collateralized by the property and improvements of the Partnership. The mortgages require prepayment penalties if repaid prior to maturity. In addition, the mortgage encumbering Snowden Village II is insured by HUD. F-13 3785 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Partnership exercised interest rate buy-downs when one of its mortgages was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $207,221 and is being amortized as a loan discount on the interest method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. Scheduled principal payments of mortgage notes payable subsequent to December 31 are as follows (in thousands): 1998....................................................... $ 130 1999....................................................... 140 2000....................................................... 151 2001....................................................... 162 2002....................................................... 2,337 Thereafter................................................. 2,439 ------ $5,359 ======
NOTE D -- RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partners and affiliates of Insignia Financial Group, Inc. ("Insignia") for the management and administration of all of the Partnership activities, as provided in the Partnership Agreement. Affiliates of Insignia have ownership interests in the General Partners, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following transactions occurred with the General Partners and affiliates during the year (in thousands): Management fee.............................................. $83 Bookkeeper fee.............................................. 8 Partnership administration fee.............................. 15 Reimbursement for services of affiliates.................... 30 Construction oversight reimbursements....................... 4
On September 6, 1997, an affiliate of the General Partners purchased Lehman Brothers' Class "D" subordinated bonds of SASCO, 1992-M1. These bonds are secured by 55 multi-family apartment mortgage loan pairs held in Trust, including Snowden Village Phase I owned by the Partnership. For the period January 1, 1996 to August 31, 1997 the Partnership insured its property under a master policy through an agency and insurer unaffiliated with Insignia. An affiliate of Insignia acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of Insignia who receives payment on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of Insignia by virtue of the agent's obligations is not significant. Insignia entered into an Agreement and Plan of Merger, dated as of May 26, 1998, (as subsequently amended and restated, the "Merger Agreement") with Apartment Investment and Management Company ("AIMCO"), pursuant to which Insignia will merge its national residential property management operations and its controlling interest in Insignia Properties Trust with and into AIMCO, with AIMCO as the survivor. Consummation of the Merger, which is anticipated to occur in the third quarter of 1998, is subject to certain conditions, including the approval of the stockholders of Insignia (but not the approval of the stockholders of AIMCO). If the closing occurs, AIMCO will then control the General Partner of the Partnership. F-14 3786 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE E -- INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except unit data): Net loss as reported........................................ $ 24 Add (deduct): Depreciation differences.................................. (159) Unearned income........................................... 4 Accruals and prepaids..................................... (2) Mortgage discount......................................... (1) ---------- Federal taxable loss........................................ $ (134) ========== Federal taxable loss per limited partnership unit........... $(3,054.20) ==========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported................................. $(1,980) Land and buildings.......................................... 13 Accumulated depreciation.................................... 236 Investment in lower tier partnerships....................... (1,000) Other....................................................... (19) ------- Net liabilities -- tax basis................................ $(2,750) =======
NOTE F -- YEAR 2000 (UNAUDITED) The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. NOTE G -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-15 3787 SNOWDEN VILLAGE ASSOCIATES, L. P. BALANCE SHEET (UNAUDITED) DECEMBER 31, 1996 ASSETS Cash: Unrestricted.............................................. $ 314,555 Restricted -- tenant security deposits.................... 41,706 $ 356,261 ----------- Taxes and insurance escrow.................................. 30,416 Reserve escrows (Note 1).................................... 173,216 Deferred charges, net of accumulated amortization of $77,033................................................... 80,456 Other assets................................................ 30,948 Investment properties, at cost (Notes 1 and 2): Land...................................................... 465,000 Buildings and related personal property................... 8,065,275 ----------- 8,530,275 Less accumulated depreciation............................. (5,739,703) 2,790,572 ----------- ----------- $ 3,461,869 =========== LIABILITIES AND PARTNERSHIP DEFICIT Liabilities: Accounts payable.......................................... $ 29,840 Accrued interest -- mortgage payable...................... 26,293 Accrued taxes............................................. 19,393 Security deposits and other tenant liabilities............ 45,100 Mortgage notes payable (Note 2)........................... 5,344,360 ----------- 5,464,986 Partners' deficit........................................... (2,003,117) ----------- $ 3,461,869 ===========
F-16 3788 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 Revenues: Rental income............................................. $1,538,427 Other apartment income.................................... 127,752 Interest income........................................... 12,118 ---------- 1,678,297 Expenses: Administrative............................................ $242,920 Operating................................................. 169,564 Maintenance............................................... 166,367 Property management fee (Note 3).......................... 82,069 Partnership administration fee (Note 3)................... 31,605 Depreciation.............................................. 217,337 Amortization.............................................. 35,195 Interest.................................................. 418,041 Property taxes............................................ 88,886 Insurance................................................. 66,192 1,518,176 -------- ---------- Net income.................................................. $ 160,121 ==========
F-17 3789 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF PARTNERS' DEFICIT (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 Partners' deficit at December 31, 1995...................... $(2,113,738) Distributions............................................. (49,500) Net income................................................ 160,121 ----------- Partners' deficit at December 31, 1996...................... $(2,003,117) ===========
F-18 3790 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF CASH FLOWS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 Operating activities Net income................................................ $ 160,121 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 252,532 Changes in assets and liabilities: Restricted cash...................................... 4,745 Accounts payable..................................... 2,497 Other assets......................................... (11,196) Security deposits and other tenant liabilities....... (12,659) Accrued interest -- mortgage......................... (255) Change in tax and insurance escrow................... 2,326 --------- Net cash provided by operating activities......... 398,111 Investing activities Property improvements and replacements.................... (153,204) Change in reserve escrows................................. (2,696) --------- Net cash (used) for investing activities.......... (155,900) Financing activities Payment on mortgage notes payable......................... (111,529) Distributions............................................. (49,500) --------- Net cash (used) for financing activities.......... (161,029) --------- Increase in cash............................................ 81,182 Cash at December 31, 1995................................... 233,373 --------- Cash at December 31, 1996................................... $ 314,555 =========
F-19 3791 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1996 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Snowden Village Associates, L. P. is a Delaware limited partnership which began operations in 1985 with the purchase of property and improvements in Fredericksburg, Virginia, presently operating as two apartment complexes. The two projects consist of Phase I, a conventional apartment complex, and Phase II, a complex regulated under Section 221(d)4 of the National Housing Act. The regulatory agreement for Phase II limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Property and improvements are recorded at the Partnership's acquisition cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over estimated service lives, using the straight-line method. Income Taxes No provision has been made for Federal and state income taxes since such taxes are the personal responsibility of the partners. Partnership Allocations Net earnings or loss and taxable income or loss are allocated 99% to the limited partners and 1% to the general partner. Distributions of available cash or proceeds from financing or sale of the property are allocated among the limited partners and the general partners in accordance with the limited partnership agreement. Cash Equivalents It is the Partnership's policy to classify all liquid short-term investments with a maturity of three months or less as cash equivalents. Management Agreements The Projects pay management fees equal to 5 percent of gross collections to Insignia Management Group. Financial Accounting Standards Statement No. 107 Disclosures The carrying amounts reported in the balance sheet for cash and reserve escrows approximate those assets' fair value. Payment of long-term liabilities are generally dependent upon the Partnership's ability to achieve cash flow, the partners providing additional funds, the sale of the project or refinancing of the mortgages at the end of their terms. Management believes that estimating the fair value of these long-term liabilities is either not appropriate or, because of excess costs, considers estimation of fair value to otherwise be impracticable. Restricted Escrows -- Reserve Accounts A General Reserve Account was established for one of the apartment complexes to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) from the property to the reserve account until the reserve account equals $1,000 per apartment unit or $132,000 in total. F-20 3792 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) The Partnership has also established a reserve for replacements in accordance with the provisions of a regulatory agreement. The restricted cash is held in a separate bank account to be used for replacements with the approval of HUD. At December 31, 1996, there was $133,861 in the General Reserve Account and $39,355 in the Reserve for Replacements, totaling $173,216. Present Value Discounts Periodically, the Partnership incurs debt at below market rates for similar debt. Present value discounts are recorded on the basis of prevailing market rates and are amortized on an interest method over the life of the related debt. Loan Costs In connection with the refinancing of certain mortgage notes payable in 1992, loan costs of $126,557 were incurred which are being amortized on a straight-line basis over the life of the loans. Long-Lived Assets During 1996, the Partnership adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which requires impairment losses to be recognized for long-lived assets used in operations when indictors of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of FASB No. 121 did not have a material effect on the Partnership's financial statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows:
MONTHLY PRINCIPAL PRINCIPAL PAYMENT STATED BALANCE BALANCE AT INCLUDING INTEREST MATURITY DUE AT DECEMBER 31, PROPERTY INTEREST RATE DATE MATURITY 1996 -------- --------- -------- -------- ---------- ------------ Snowden Village Phase II........ $20,793 7.5% 9/1/20 $ 181,355 $2,758,400 Snowden Village Phase I: 1st mortgage.................. 22,793 7.6% 11/15/02 2,082,239 2,630,137 2nd mortgage.................. 566 7.6% 11/15/02 89,317 89,317 ------- ---------- $23,359 2,719,454 ======= ---------- 5,477,854 Less unamortized present value discounts at 8.76%............ 133,494 ---------- $5,344,360 ==========
Mortgages are collateralized by the related property and improvements of the Partnership. F-21 3793 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) During the year, net interest costs incurred were $418,041 and interest paid was $418,296. The Partnership exercised interest rate buy-downs when one of its mortgages was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $207,221 and is being amortized as a loan discount on the interest method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. Scheduled principal payments of mortgage notes payable subsequent to December 31 are as follows: 1997.................................................... $ 119,989 1998.................................................... 129,371 1999.................................................... 139,836 2000.................................................... 150,786 2001.................................................... 162,595 Thereafter.............................................. 4,775,277 ---------- $5,477,854 ==========
3. RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The following transactions occurred with the General Partner and its affiliates during the year: Management fee............................................ $82,069 Bookkeeper fee............................................ 5,856 Partnership administration fee............................ 31,605
F-22 3794 SNOWDEN VILLAGE ASSOCIATES, L. P. BALANCE SHEET (UNAUDITED) DECEMBER 31, 1995 ASSETS Cash: Unrestricted.............................................. $ 233,373 Restricted -- tenant security deposits.................... 46,451 $ 279,824 ----------- Taxes and insurance escrow.................................. 32,742 Reserve escrows (Note 1).................................... 170,520 Deferred charges, net of accumulated amortization of $61,212................................................... 96,276 Other assets................................................ 19,752 Investment properties, at cost (Notes 1 and 2): Land...................................................... 465,000 Buildings and related personal property................... 7,912,071 ----------- 8,377,071 Less accumulated depreciation............................. (5,522,366) 2,854,705 ----------- ---------- $3,453,819 ========== LIABILITIES AND PARTNERSHIP DEFICIT Liabilities: Accounts payable.......................................... $ 27,343 Accrued interest -- mortgage payable...................... 26,548 Accrued taxes............................................. 19,393 Security deposits and other tenant liabilities............ 57,759 Mortgage notes payable (Note 2)........................... 5,436,514 ---------- 5,567,557 Partnership deficit......................................... (2,113,738) ---------- $3,453,819 ==========
F-23 3795 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 1995 Revenues: Rental income............................................. $1,589,569 Other apartment income.................................... 142,241 Interest income........................................... 7,091 ---------- 1,738,901 Expenses: Administrative............................................ $273,915 Operating................................................. 212,161 Maintenance............................................... 187,360 Property management fee (Note 3).......................... 86,362 Partnership administration fee (Note 3)................... 41,054 Depreciation.............................................. 449,365 Amortization.............................................. 34,326 Interest.................................................. 426,159 Property taxes............................................ 90,429 Insurance................................................. 71,660 1,872,791 -------- ---------- Net loss.................................................... $ (133,890) ==========
F-24 3796 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF DEFICIT (UNAUDITED) YEAR ENDED DECEMBER 31, 1995
LIMITED GENERAL PARTNERS PARTNERS TOTAL ----------- -------- ----------- Deficit at December 31, 1994............................ $(1,933,847) $(46,001) $(1,979,848) Net loss.............................................. (132,551) (1,339) (133,890) ----------- -------- ----------- Deficit at December 31, 1995............................ $(2,066,398) $(47,340) $(2,113,738) =========== ======== ===========
F-25 3797 SNOWDEN VILLAGE ASSOCIATES, L. P. STATEMENT OF CASH FLOWS (UNAUDITED) YEAR ENDED DECEMBER 31, 1995 Operating activities Net loss.................................................. $(133,890) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.......................... 483,691 Changes in assets and liabilities: Restricted cash...................................... (11,398) Accounts payable..................................... (312) Accrued taxes........................................ 232 Other assets......................................... 9,765 Security deposits and other tenant liabilities....... 12,155 Accrued interest -- mortgage......................... (236) Change in tax and insurance escrow................... (3,006) --------- Net cash provided by operating activities......... 357,001 Investing activities Property improvements and replacements.................... (167,451) Reserve escrows deposits.................................. (36,734) Reserve escrows withdrawals............................... 15,404 --------- Net cash (used) for investing activities.......... (188,781) Financing activities Payment on mortgage notes payable......................... (103,429) --------- Increase in cash............................................ 64,791 Cash at December 31, 1994................................... 168,582 --------- Cash at December 31, 1995................................... $ 233,373 =========
F-26 3798 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1995 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Snowden Village Associates, L. P. is a Delaware limited partnership which began operations in 1985 with the purchase of property and improvements in Fredericksburg, Virginia, presently operating as two apartment complexes. The two projects consist of Phase I, a conventional apartment complex, and Phase II, a complex regulated under Section 221(d)4 of the National Housing Act. The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of each year. Depreciation Property and improvements are recorded at the Partnership's acquisition cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over estimated service lives, using the straight-line method. Income Taxes No provision has been made for Federal and state income taxes since such taxes are the personal responsibility of the partners. Partnership Allocations Net earnings or loss and taxable income or loss are allocated 99% to the limited partners and 1% to the general partner. Distributions of available cash or proceeds from financing or sale of the property are allocated among the limited partners and the general partners in accordance with the limited partnership agreement. Cash Equivalents It is the Partnership's policy to classify all liquid short-term investments with a maturity of three months or less as cash equivalents. Management Agreements The Projects pay management fees equal to 5 percent of gross collections to Insignia Management Group. Financial Accounting Standards Statement No. 107 Disclosures The carrying amounts reported in the balance sheet for cash and reserve escrows approximate those assets' fair value. Payment of long-term liabilities are generally dependent upon the Partnership's ability to achieve cash flow, the partners providing additional funds, the sale of the project or refinancing of the mortgages at the end of their terms. Management believes that estimating the fair value of these long-term liabilities is either not appropriate or, because of excess costs, considers estimation of fair value to otherwise be impracticable. F-27 3799 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) Restricted Escrows -- Reserve Accounts A General Reserve Account was established for one of the apartment complexes to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) from the property to the reserve account until the reserve account equals $1,000 per apartment unit or $132,000 in total. The Partnership has also established a reserve for replacements in accordance with the provisions of a regulatory agreement. The restricted cash is held in a separate bank account to be used for replacements with the approval of HUD. At December 31, 1995, there was $135,045 in the General Reserve Account and $35,475 in the Reserve for Replacements, totaling $170,520. Present Value Discounts Periodically, the Partnership incurs debt at below market rates for similar debt. Present value discounts are recorded on the basis of prevailing market rates and are amortized on an interest method over the life of the related debt. Loan Costs In connection with the refinancing of certain mortgage notes payable in 1992, loan costs of $126,557 were incurred which are being amortized on a straight-line basis over the life of the loans. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows:
MONTHLY PRINCIPAL PRINCIPAL PAYMENT STATED BALANCE BALANCE AT INCLUDING INTEREST MATURITY DUE AT DECEMBER 31, PROPERTY INTEREST RATE DATE MATURITY 1995 -------- --------- -------- -------- ---------- ------------ Snowden Village Phase II........ $20,793 7.5% 9/1/20 $ 181,355 $2,799,247 Snowden Village Phase I: 1st mortgage.................. 22,793 7.6% 11/15/02 2,082,239 2,700,820 2nd mortgage.................. 566 7.6% 11/15/02 89,317 89,317 ------- ---------- $23,359 2,790,137 ======= ---------- 5,589,384 Less unamortized present value discounts at 8.76%............ 152,870 ---------- $5,436,514 ==========
Mortgages are collateralized by the related property and improvements of the Partnership. F-28 3800 SNOWDEN VILLAGE ASSOCIATES, L. P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) During the year, net interest costs incurred were $426,159 and interest paid was $426,395. The Partnership exercised interest rate buy-downs when one of its mortgages was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $207,221 and is being amortized as a loan discount on the interest method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. Scheduled principal payments of mortgage notes payable subsequent to December 31 are as follows: 1996.................................................... $ 111,275 1997.................................................... 119,989 1998.................................................... 129,371 1999.................................................... 139,836 2000.................................................... 150,786 Thereafter.............................................. 4,938,127 ---------- $5,589,384 ==========
3. RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The following transactions occurred with the General Partner and its affiliates during the year: Management fee............................................ $86,362 Bookkeeper fee............................................ 5,856 Partnership administration fee............................ 41,054
F-29 3801 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 3802 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 3803 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 September , 1998 A-3 3804 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF STURBROOK INVESTORS, 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 IMMEDIATE TAXABLE GAIN OR LOSS IF YOU THE OUTSTANDING UNITS IN RESPONSE TO OUR EXCHANGE YOUR UNITS SOLELY FOR OUR OFFER. IF MORE UNITS ARE TENDERED TO US, WE SECURITIES. HOWEVER, YOU WILL RECOGNIZE WILL 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 3805 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 Valuation of Units........................... S-17 Fairness of the Offer........................ S-17 Stanger Analysis............................. S-17 Comparison of Your Partnership and Our 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-20 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 Sturbrook Investors, 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-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-36 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-41 Fees and Expenses............................ S-42 Accounting Treatment......................... S-42
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-43 General...................................... S-43 Ranking...................................... S-43 Distributions................................ S-43 Allocation................................... S-44 Liquidation Preference....................... S-44 Redemption................................... S-45 Voting Rights................................ S-45 Restrictions on Transfer..................... S-45 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-46 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-48 CERTAIN FEDERAL INCOME TAX MATTERS............. S-51 Tax Consequences of Exchanging Units Solely for OP Units............................... S-51 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-51 Tax Consequences of Exchanging Units Solely for Cash................................... S-52 Adjusted Tax Basis........................... S-52 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-53 Passive Activity Losses...................... S-53 Foreign Offerees............................. S-54 Certain Tax Consequences to Non-Tendering and Partially-Tendering Unitholders............ S-54 VALUATION OF UNITS............................. S-55 FAIRNESS OF THE OFFER.......................... S-56 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-56 Fairness to Unitholders who Tender their Units...................................... S-57 Fairness to Unitholders who do not Tender their Units................................ S-58 Comparison of Consideration to Alternative Consideration.............................. S-58 Allocation of Consideration.................. S-59 STANGER ANALYSIS............................... S-60 Experience of Stanger........................ S-60 Summary of Materials Considered.............. S-60 Summary of Reviews........................... S-61 Conclusions.................................. S-62 Assumptions, Limitations and Qualifications............................. S-62 Compensation and Material Relationships...... S-63 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-64 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-69 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 3806
PAGE ---- YOUR PARTNERSHIP............................... S-74 General...................................... S-74 Your Partnership and its Property............ S-74 Property Management.......................... S-74 Investment Objectives and Policies; Sale or Financing of Investments................... S-74 Capital Replacement.......................... S-75 Borrowing Policies........................... S-75 Competition.................................. S-75 Legal Proceedings............................ S-75 Selected Financial Information............... S-75 Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership............. S-77 Fiduciary Responsibility of the General Partner of Your Partnership................ S-79
PAGE ---- Distributions and Transfers of Units......... S-79 Beneficial Ownership of Interests in Your Partnership................................ S-80 Compensation Paid to the General Partner and its Affiliates............................. S-80 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-81 LEGAL MATTERS.................................. S-81 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 3807 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 Sturbrook Investors, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 3808 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 3809 - 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 $ 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 distributions of $ 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 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 3810 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 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer 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. In addition, 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. S-4 3811 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 100% of 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? 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: 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 3812 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 3813 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. 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. 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 5 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. 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 S-7 3814 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. 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 Code. The particular tax consequences to you of the exchange 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 3815 and manages a single 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 units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the 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 3816 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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 S-10 3817 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, 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 3818 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 3819 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). S-13 3820 - 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 3821 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 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 3822 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 3823 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 3824 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. 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 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 generated in that capacity and fees for additional services. The property manager received management fees of $68,988 in 1996, $73,266 in 1997 and $39,322 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. S-18 3825 YOUR PARTNERSHIP Your Partnership and its Property. Sturbrook Investors, Ltd. is a California limited partnership which was formed on October 15, 1981 for the purpose of owning and operating a single apartment property located in Richmond, Virginia, known as "Sunrise V". In 1982, it completed a private placement of units that raised net proceeds of approximately $2,624,800. Sunrise V consists of 229 apartment units. Your partnership has no employees. Property Management. Since 1992, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2031, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,912,829, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $139,037, which bears interest at 7.60% and is due November 1998. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 3826 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, 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 3827
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 3828 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 3829
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 3830 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 3831 SUMMARY FINANCIAL INFORMATION OF STURBROOK INVESTORS, LTD. The summary financial information of Sturbrook Investors, Ltd. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Sturbrook Investors, Ltd. for the years ended December 31, 1997 and 1996, 1995, 1994 and 1993 is based on 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 of Your Partnership" included herein. See "Index to Financial Statements." STURBROOK INVESTORS, LTD.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues......... $ 771,826 $ 696,904 $ 1,479,648 $ 1,381,966 $ 1,371,211 $ 1,293,203 $ 1,228,736 Net Income/(Loss)............ 246,607 55,496 194,729 (64,258) (66,802) (32,780) (174,051) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation... 1,327,865 1,245,685 1,285,960 1,038,507 1,134,078 1,291,013 1,418,219 Total Assets........... $ 2,110,896 $ 1,932,051 $ 1,950,360 $ 1,826,100 $ 1,974,200 $ 2,094,041 $ 2,198,720 Mortgage Notes Payable, including Accrued Interest................... 3,909,582 4,000,589 3,972,381 4,058,805 4,136,572 4,206,309 4,270,039 Partners' Capital/(Deficit).......... $(1,858,149) $(2,243,995) $(2,104,758) $(2,299,487) $(2,235,229) $(2,168,427) $(2,135,647)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 Not Available Not Available
S-25 3832 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. 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 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 cash 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, 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 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. S-26 3833 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 Code. 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 therefore 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 apartment property. In contrast, the AIMCO Operating Partnership is in the business of acquiring, S-27 3834 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, and distributions with respect to your units for the six months ended June 30, 1998 were $ 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 an 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 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 S-28 3835 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 prohibits any transfer of units without the consent of the general partner. Such consent may be withheld by the general partner in its sole discretion. The general partner may withhold its consent if such transfer would result in the termination of your partnership for tax purposes which will occur if more than 50% or more of the total interests in your partnership are transferred within a 12-month period. If we acquire a significant percentage of the interest in your partnership, the general partner may not consent to a transfer for a 12-month period following the offer. MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. S-29 3836 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 3837 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 3838 - 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 3839 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-33 3840 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 3841 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. 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. S-35 3842 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." 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. 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. S-36 3843 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, (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 9:00 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 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, Denver, Colorado time. S-37 3844 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-38 3845 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. 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, which change, 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 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 S-39 3846 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 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 S-40 3847 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-41 3848 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. 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. 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-42 3849 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-43 3850 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 payment. 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 OP Units and any such S-44 3851 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-45 3852 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-46 3853 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-47 3854 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-48 3855 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-49 3856 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-50 3857 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-51 3858 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-52 3859 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-53 3860 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 UNITHOLDERS 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 unitholders who do not tender all of their units (a "Remaining Unitholders") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Unitholder will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Unitholders in the Old Partnership will carry over intact into the New Partnership. Any Termination may change (and possibly shorten) a Remaining Unitholder'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 Unitholders 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 Unitholders 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 unitholder 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 unitholders. In the case of a Remaining Unitholder 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 unitholder's taxable income for the year of Termination. S-54 3861 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-55 3862 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-56 3863 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 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, a third party expert, 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 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 $ (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-57 3864 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-58 3865 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. 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-59 3866 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment properties; (viii) reviewed internal financial analyses and forecasts prepared by your partnership of the estimated current net liquidation value of S-60 3867 your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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 September 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 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 property was 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-61 3868 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-62 3869 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-1. 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 $9,000 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-63 3870 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Sunrise V. 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, 2031. 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, directly The purpose of the AIMCO Operating Partnership is to or indirectly, develop, own, hold, maintain, operate conduct any business that may be lawfully conducted by for the production of income and dispose of property a limited partnership organized pursuant to the situated in the United States. Subject to restrictions Delaware Revised Uniform Limited Partnership Act (as contained in your partnership's agreement of limited amended from time to time, or any successor to such partnership, your partnership may perform all act statute) (the "Delaware Limited Partnership Act"), necessary or appropriate in connection therewith and provided that such business is to be conducted in a reasonably related thereto, including borrowing money, manner that permits AIMCO to be qualified as a REIT, creating liens and investing funds in financial unless AIMCO ceases to qualify as a REIT. The AIMCO instruments. 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-64 3871 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The corporate general partner of your partnership is The general partner is authorized to issue additional authorized to issue additional limited partnership partnership interests in the AIMCO Operating interests in your partnership and may admit additional Partnership for any partnership purpose from time to limited partners by selling 3 A units and not less than time to the limited partners and to other persons, and 26 nor more than 34 B units for cash and notes to to admit such other persons as additional limited selected persons who fulfill the requirements set forth partners, on terms and conditions and for such capital in your partnership's agreement of limited partnership. contributions as may be established by the general The capital contribution need not be equal for all partner in its sole discretion. The net capital limited partners and no action or consent is required contribution need not be equal for all OP Unitholders. in connection with the admission of any additional No action or consent by the OP Unitholders is required limited partners. in connection with the admission of any additional OP The general partner is also authorized to issue Unitholder. See "Description of OP Units -- Management additional units for sale from time to time, the by the AIMCO GP" in the accompanying Prospectus. number, price and terms of which will be determined at Subject to Delaware law, any additional partnership the sole discretion of the general partner. If such interests may be issued in one or more classes, or one additional units are sold on terms other than those at or more series of any of such classes, with such which the original units were offered or more than 24 designations, preferences and relative, partici- months have passed since the last amendment adding pating, optional or other special rights, powers and limited partners, those limited partners who purchased duties as shall be determined by the general partner, the original units will possess preemptive rights in in its sole and absolute discretion without the connection with the sale of additional units. 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 of your partnership may contract The AIMCO Operating Partnership may lend or contribute with affiliated persons for the management or funds or other assets to its subsidiaries or other supervision of any or all of the assets of your persons in which it has an equity investment, and such partnership or for the performance of any other persons may borrow funds from the AIMCO Operating services which the general partner deemed necessary or Partnership, on terms and conditions established in the advisable for the operation of your partnership. Any sole and absolute discretion of the general partner. To and all compensation paid to such affiliated persons in the extent consistent with the business purpose of the connection with services performed for your partnership AIMCO Operating Partnership and the permitted must be reasonable and fair to your partnership and the activities of the general partner, the AIMCO Operating partners. Such contracts between your partnership and Partnership may transfer assets to joint ventures, the general partner or any affiliates must provide that limited liability companies, partnerships, it may be cancelled at any time by your partnership corporations, business trusts or other business without penalty upon 60 days prior written notice. In entities in which it is or thereby becomes a addition, the general partner and its affiliates may participant upon such terms and subject to such lend money to your partnership which will be repaid in conditions consistent with the AIMCO Operating Part- accordance with the terms of the advances out of the nership Agreement and applicable law as the general gross receipts of your partnership with interest at the partner, in its sole and absolute discretion, believes then prevailing commercial rate or at the highest rate to be advisable. Except as expressly permitted by the permitted by the applicable usury law, whichever is AIMCO Operating Partnership Agreement, neither the less. Your partnership may lend working capital general partner nor any of its affiliates may sell, reserves which are not needed to meet partnership transfer or convey any property to the AIMCO Operating expenses or make distributions as determined in the Partnership, directly or indirectly, except pursuant to sole discretion of the general partner to the general transactions that are determined by the general partner partner or its affiliates. Such loans are payable on in good faith to be fair and reasonable. demand and bear interest at the rate of interest charged by Wells Fargo Bank to its prime commercial customers for unsecured loans, are otherwise com- mercially reasonable and in the aggregate, do not exceed the amount of excess working capital reserves of your partnership.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money on the credit of and enter into restrictions on borrowings, and the general partner has obligations, recourse and nonrecourse, on behalf of full power and authority to borrow money on behalf of your partnership and to give as security therefor any the AIMCO Operating Partnership. The AIMCO Operating partnership's property. 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.
S-65 3872 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 the limited partners or their designated with a statement of the purpose of such demand and at representative to inspect and, at their sole cost and such OP Unitholder's own expense, to obtain a current expense, copy the contents of the books and records of list of the name and last known business, residence or your partnership at the principal place of business of mailing address of the general partner and each other your partnership during normal business hours. OP Unitholder.
Management Control The general partner of your partnership exclusively All management powers over the business and affairs of manages and controls your partnership and all aspects the AIMCO Operating Partnership are vested in AIMCO-GP, of its business. The general partner has all the rights Inc., which is the general partner. No OP Unitholder and powers which may be possessed by a general partner has any right to participate in or exercise control or under California law. Subject to the limitations management power over the business and affairs of the contained in your partnership's agreement of limited AIMCO Operating Partnership. The OP Unitholders have partnership, the general partner has the power to the right to vote on certain matters described under perform acts, upon such terms and conditions as the "Comparison of Ownership of Your Units and AIMCO OP general partner deems appropriate and in furtherance of Units -- Voting Rights" below. The general partner may your partnership's business. The limited partners have not be removed by the OP Unitholders with or without no right to participate in the management or control of cause. your partnership, to act on behalf of your partnership, to bind your partnership, or, except as specifically In addition to the powers granted a general partner of authorized in your partnership's agreement of limited a limited partnership under applicable law or that are partnership, to vote upon any matter involving your granted to the general partner under any other partnership. 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, to the extent of its the AIMCO Operating Partnership Agreement, the general assets, will indemnify and hold harmless the general partner is not liable to the AIMCO Operating partner of your partnership and its affiliates from any Partnership for losses sustained, liabilities incurred expense, liability or loss resulting from any act or or benefits not derived as a result of errors in omission by the general partner within the scope of the judgment or mistakes of fact or law of any act or authority conferred by your partnership's agreement of omission if the general partner acted in good faith. limited partnership, except for acts or omissions The AIMCO Operating Partnership Agreement provides for constituting fraud, bad faith, willful misconduct or indemnification of AIMCO, or any director or officer of gross negligence, including all such liabilities under AIMCO (in its capacity as the previous general partner Federal and state securities laws as permitted by law. of the AIMCO Operating Partnership), the general Attorneys' fees may be paid as incurred. If such a partner, any officer or director of general partner or claim for indemnification (other than for expenses the AIMCO Operating Partnership and such other persons incurred in a successful defense) is asserted against as the general partner may designate from and against your partnership, your partnership will, unless in the all losses, claims, damages, liabilities, joint or opinion of its counsel the matter has been settled by several, expenses (including legal fees), fines, controlling precedent, submit to a court of appropriate settlements and other amounts incurred in connection jurisdiction the question of whether such with any actions relating to the operations of the indemnification by it is against public policy and will AIMCO Operating Partnership, as set forth in the AIMCO be governed by the final adjudication of such issue. 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
S-66 3873 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 and elect a partner may not be removed as general partner of the substitute general partner if no general partner AIMCO Operating Partnership by the OP Unitholders with remains. Subject to limitations set forth in your or without cause. Under the AIMCO Operating Partnership partnership's agreement of limited partnership, a Agreement, the general partner may, in its sole general partner may withdraw from your partnership at discretion, prevent a transferee of an OP Unit from any time. An additional general partner may be admitted becoming a substituted limited partner pursuant to the with the consent of the general partners and the AIMCO Operating Partnership Agreement. The general limited partners owning a majority of the outstanding partner may exercise this right of approval to deter, units. A limited partner may not transfer its interests delay or hamper attempts by persons to acquire a without the written consent of the general partner controlling interest in the AIMCO Operating Partner- which may be withheld at the sole discretion of the ship. Additionally, the AIMCO Operating Partnership corporate general 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 to add in the AIMCO Operating Partnership Agreement, whereby representations, duties or obligations of the general the general partner may, without the consent of the OP partner or surrender a right or power granted to the Unitholders, amend the AIMCO Operating Partnership general partner, effect a ministerial change which does Agreement, amendments to the AIMCO Operating not materially affect the rights of the limited Partnership Agreement require the consent of the partners and as required by law. All other amendments holders of a majority of the outstanding Common OP must be approved by the limited partners owning more Units, excluding AIMCO and certain other limited than 50% of the units and the general partner. exclusions (a "Majority in Interest"). Amendments to Amendments of provisions that require the consent of a the AIMCO Operating Partnership Agreement may be greater percentage than a majority may be amended only proposed by the general partner or by holders of a the percentage required in such provisions. In Majority in Interest. Following such proposal, the addition, any amendment that adversely affects a general partner will submit any proposed amendment to partner or partners must be approved by the affected the OP Unitholders. The general partner will seek the parties. written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner but capacity as general partner of the AIMCO Operating may receive fees for additional services. Moreover, the Partnership. In addition, the AIMCO Operating Part- general partner or certain affiliates may be entitled nership is responsible for all expenses incurred to compensation for additional services rendered. 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-67 3874 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 personally liable negligence, no OP Unitholder has personal liability for for claims against or debts of your partnership, except the AIMCO Operating Partnership's debts and as provided under California law. 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 The general partner has the responsibility for the Unless otherwise provided for in the relevant safekeeping and use of all funds and assets of your partnership agreement, Delaware law generally requires partnership and must not employ or permit others to a general partner of a Delaware limited partnership to employ such funds or assets in any manner except for adhere to fiduciary duty standards under which it owes the exclusive benefit of your partnership. Your its limited partners the highest duties of good faith, partnership's agreement of limited partnership provides fairness and loyalty and which generally prohibit such that the general partner and its affiliates with whom general partner from taking any action or engaging in it contracts on behalf of your partnership must devote any transaction as to which it has a conflict of such of their time to the business of your partnership interest. The AIMCO Operating Partnership Agreement as they may, in their sole discretion, deem necessary expressly authorizes the general partner to enter into, to conduct said business. The general partner and its on behalf of the AIMCO Operating Partnership, a right affiliates may engage for their own account and for the of first opportunity arrangement and other conflict account of others in any business ventures, including avoidance agreements with various affiliates of the the purchase of real estate properties, the AIMCO Operating Partnership and the general partner, on development, operation, management or syndication of such terms as the general partner, in its sole and real estate properties, and your partnership will have absolute discretion, believes are advisable. The AIMCO no right to participate therein. However, the general Operating Partnership Agreement expressly limits the partner must at all times act in the best interests of liability of the general partner by providing that the your partnership and in no event contrary to the general partner, and its officers and directors will fiduciary relationship that it bears at all times in not be liable or accountable in damages to the AIMCO relation to your partnership and to each of the Operating Partnership, the limited partners or partners with regard to your partnership's business. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-68 3875 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, the limited applicable law or in the AIMCO ship Agreement, the OP Unitholders partners owning a majority of the Operating Partnership Agreement, have voting rights only with outstanding units may without the the holders of the Preferred OP respect to certain limited matters concurrence of the general partner, Units will have the same voting such as certain amendments and vote to amend your partnership's rights as holders of the Common OP termination of the AIMCO Operating agreement of limited partnership, Units. See "Description of OP Partnership Agreement and certain subject to certain limitations; Units" in the accompanying transactions such as the dissolve and terminate your Prospectus. So long as any institution of bankruptcy partnership; remove one or more Preferred OP Units are outstand- proceedings, an assignment for the general partners; elect one or more ing, in addition to any other vote benefit of creditors and certain general partners; and approve or or consent of partners required by transfers by the general partner of disapprove the sale of all or law or by the AIMCO Operating its interest in the AIMCO Operating substantially all of Partnership Agree- Part-
S-69 3876 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS the assets of your partnership. The ment, the affirmative vote or nership or the admission of a limited partners owning a majority consent of holders of at least 50% successor general partner. of the outstanding units must also of the outstanding Preferred OP approve certain transactions which Units will be necessary for Under the AIMCO Operating Partner- may adversely affect your effecting any amendment of any of ship Agreement, the general partner partnership. the provisions of the Partnership has the power to effect the The 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 unless, the remaining adversely affects the rights or any assets of the AIMCO Operating general partner elects to continue preferences of the holders of the Partnership (including, but not your partnership within 120 days or Preferred OP Units. The creation or limited to, the exercise or grant if there is no remaining general issuance of any class or series of of any conversion, option, partner, the limited partners partnership units, including, privilege or subscription right or owning more the 50% of the then without limitation, any partner- any other right available in outstanding units may elect a new ship units that may have rights connection with any assets at any general partner 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 are to be distributed provided, however, that at any time portion as the general partner may from time to time but no less often and from time to time on or after in its sole and absolute discretion than quarterly and not later than the fifth anniversary of the issue determine, of Available Cash (as ninety days after the end of the 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. Your of five years, and (ii) the annual established by the general partner partnership has not made dividend rate on the most recently with respect to such quarter, in distributions in the past and is issued AIMCO non-convertible accordance with their respective not projected to made distributions preferred stock which ranks on a interests in the AIMCO Operating in 1998. parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-70 3877 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 and be Preferred OP Units and the OP Units. The AIMCO Operating Part- substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the such person if: (1) such transfer on any securities exchange. The transferability of the OP Units. is in compliance with applicable Preferred OP Units are subject to Until the expiration of one year Federal and state securities law, restrictions on transfer as set from the date on which an OP (2) a written assignment has been forth in the AIMCO Operating Unitholder acquired OP Units, duly executed by the assignor and Partnership Agreement. subject to certain exceptions, such assignee, (3) the written approval OP Unitholder may not transfer all of the general partner which may be Pursuant to the AIMCO Operating or any portion of its OP Units to withheld in the sole and absolute Partnership Agreement, until the any transferee without the consent discretion of the general partner expiration of one year from the of the general partner, which has been granted and (4) the date on which a holder of Preferred consent may be withheld in its sole assignor or the assignee pays a OP Units acquired Preferred OP and absolute discretion. After the transfer fee. Units, subject to certain expiration of one year, such OP There are no redemption rights exceptions, such holder of Unitholder has the right to associated with your units. Preferred OP Units may not transfer transfer all or any portion of its all or any portion of its Pre- OP Units to any person, subject to 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
S-71 3878 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-72 3879 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 from your partnership but may receive reimbursement for expenses generated in that capacity and fees for additional services. The property manager received management fees of $68,988 in 1996, $73,266 in 1997 and $39,322 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's 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'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 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 3880 YOUR PARTNERSHIP GENERAL Sturbrook Investors, Ltd. is a California limited partnership which raised net proceeds of approximately $2,624,800 in 1982 through a private offering. The promoter for the private offering of your partnership was Calmark Properties, Inc. & Subs. Insignia acquired your partnership in 1992. AIMCO acquired Insignia in October, 1998. There are currently a total of 36 limited partners of your partnership and a total of 37 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 15, 1981 for the purpose of owning and operating a single apartment property located in Richmond, Virginia, known as "Sunrise V." Your partnership's property consists of 229 apartment units. The total rentable square footage of your partnership's property is 212,425 square feet. Your partnership's property had an average occupancy rate of approximately 95.63% in 1996 and 95.63% in 1997. The average annual rent per apartment unit is approximately $6,142. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since 1992, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $68,988, $73,266 and $39,322, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is not limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2031 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is not limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-74 3881 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $3,912,829, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $139,037, which bears interest at 7.60% and is due November 1998. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. The audited financial statements have been audited by Ernst & Young LLP. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-75 3882 Below is selected financial information for Sturbrook Investors, Ltd. taken from the financial statements described above. See "Index to Financial Statements."
STURBROOK INVESTORS, LTD. ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 169,403 $ 40,327 $ 96,964 $ 203,662 $ 243,002 $ 181,992 $ 112,526 Land & Building.............. 6,133,573 5,943,110 6,037,527 5,681,791 5,528,371 5,333,621 5,205,412 Accumulated Depreciation..... (4,805,709) (4,697,426) (4,751,567) (4,643,284) (4,394,293) (4,042,608) (3,787,193) Other Assets................. 613,628 646,040 567,436 583,931 597,120 621,036 667,975 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 2,110,896 $ 1,932,051 $ 1,950,360 $ 1,826,100 $ 1,974,200 $ 2,094,041 $ 2,198,720 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... $ 3,909,582 $ 4,000,589 $ 3,972,381 $ 4,058,805 $ 4,136,572 $ 4,206,309 $ 4,270,039 Other Liabilities............ 59,462 175,457 82,737 66,782 72,857 56,159 64,328 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 3,969,044 4,176,046 4,055,118 4,125,587 4,209,429 4,262,468 4,334,367 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $(1,858,149) $(2,243,995) $(2,104,758) $(2,299,487) $(2,235,229) $(2,168,427) $(2,135,647) =========== =========== =========== =========== =========== =========== ===========
STURBROOK INVESTORS, LTD. ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue................. $730,096 $662,822 $1,398,545 $1,308,562 $1,299,707 $1,221,815 $1,185,716 Other Income................... 41,730 34,082 81,103 73,404 71,504 71,388 43,020 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Revenue......... 771,826 696,904 1,479,648 1,381,966 1,371,211 1,293,203 1,228,736 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Expenses............. 267,376 377,888 720,923 740,554 567,923 544,639 667,931 General & Administrative....... 13,663 12,320 16,459 13,783 89,317 87,704 56,762 Depreciation................... 54,142 54,142 108,283 248,991 351,685 255,415 234,670 Interest Expense............... 153,271 159,951 364,392 373,880 366,601 372,609 380,941 Property Taxes................. 36,768 37,108 74,862 69,016 62,487 65,616 62,483 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Expenses........ 525,220 641,409 1,284,919 1,446,224 1,438,013 1,325,983 1,402,787 -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income..................... $246,607 $ 55,496 $ 194,729 $ (64,258) $ (66,802) $ (32,780) $ (174,051) ======== ======== ========== ========== ========== ========== ==========
S-76 3883 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $246,607 for the six months ended June 30, 1998, compared to $55,496 for the six months ended June 30, 1997. The increase in net income of $191,111, or 344.37% was primarily the result of increased rental revenue and decreased operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $771,826 for the six months ended June 30, 1998, compared to $696,904 for the six months ended June 30, 1997. The increase of $74,922, or 10.75% was primarily the result of increased occupancy and a $5 per unit rate increase on select two and three bedroom units. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $267,376 for the six months ended June 30, 1998, compared to $377,888 for the six months ended June 30, 1997, a decrease of $110,512 or 29.24%. The decrease was primarily the result of advertising, resident relations, and non-capitalized exterior repairs and maintenance. Management expenses totaled $39,322 for the six months ended June 30, 1998, compared to $34,496 for the six months ended June 30, 1997, an increase of $4,826, or 13.99%. The increase resulted from an increase in rental revenue, as the management fees are a percentage of total revenue. General and Administrative Expenses General and administrative expenses totaled $13,663 for the six months ended June 30, 1998 compared to $12,320 for the six months ended June 30, 1997, a decrease of $1,343 or 10.90%. The decrease is due to a general decrease in various administrative expenses. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $153,271 for the six months ended June 30, 1998, compared to $159,951 for the six months ended June 30, 1997, a decrease of $6680, or 4.18%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $194,729 for the year ended December 31, 1997, compared to a net loss of $64,258 for the year ended December 31, 1996. The increase in net income of $258,987 was primarily the result of increased rental revenue, decreased operating expenses and a $140,000 decrease in depreciation expense due to 15 year property becoming fully depreciated after 1996. S-77 3884 Revenues Rental and other property revenues from the partnership's property totaled $1,479,648 for the year ended December 31, 1997, compared to $1,381,966 for the year ended December 31, 1996. The increase of $97,682, or 7.07%. Was primarily due to increased rental rates and a slight increase in occupancy. There was also an increase in other revenue because of increases in lease cancellation fees. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $720,923 for the year ended December 31, 1997, compared to $740,554 for the year ended December 31, 1996, a decrease of $19,631 or 2.65%. Management expenses totaled $73,266 for the year ended December 31, 1997, compared to $68,988 for the year ended December 31, 1996, an increase of $4,278, or 6.20%. This increase is due to increased rental revenue, as management fees are calculated as a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $16,459 for the year ended December 31, 1997 compared to $13,783 for the year ended December 31, 1996, an increase of $2,676 or 19.42%. The increase is primarily due to an increase in general partner reimbursements and timing of audit expenditure. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $364,392 for the year ended December 31, 1997, compared to $373,880 for the year ended December 31, 1996, a decrease of $9,488, or 2.54%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net loss of $64,258 for the year ended December 31, 1996, compared to a net loss of $66,802 for the year ended December 31, 1995, an increase in net income of $2,544. Revenues Rental and other property revenues from the partnership's property totaled $1,381,966 for the year ended December 31, 1996, compared to $1,371,211 for the year ended December 31, 1995, an increase of $10,755, or 0.78%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $740,554 for the year ended December 31, 1996, compared to $567,923 for the year ended December 31, 1995, The increase of $172,631 or 30.40% is primarily due to increased costs related to non-capitalizable property improvements. Management Expenses totaled $68,988 for the year ended December 31, 1996, compared to $67,600 for the year ended December 31, 1995, an increase of $1,388 or 2.05%. General and Administrative Expenses General and administrative expenses totaled $13,783 for the year ended December 31, 1996 compared to $89,317 for the year ended December 31, 1995, a decrease of $75,534 or 84.57%. The decrease is primarily due to timing of audit expenditures and reclassification of certain general and administrative expenses to operating expenses. S-78 3885 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $373,880 for the year ended December 31, 1996, compared to $366,601 for the year ended December 31, 1995, an increase of $7,279, or 1.99%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $169,403 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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, your partnership, to the extent of its assets, will indemnify and hold harmless the general partner of your partnership and its affiliates from any expense, liability or loss resulting from any act or omission by the general partner within the scope of the authority conferred by your partnership's agreement of limited partnership, except for acts or omissions constituting fraud, bad faith, willful misconduct or gross negligence, including all such liabilities under Federal and state securities laws as permitted by law. 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 owned by AIMCO. See "Conflicts of Interest". If such a claim for indemnification (other than for expenses incurred in a successful defense) is asserted against your partnership, your partnership 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 of whether such indemnification by it is against public policy and will be governed by the final adjudication of such issue. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated year were determined based upon operations of your partnership during the preceding year.
YEAR DISTRIBUTIONS - ---- ------------- 1994.................................................... Not Available 1995.................................................... Not Available 1996.................................................... Not Available 1997.................................................... Not Available 1998 (through June 30).................................. Not Available
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the S-79 3886 general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994............................................ $5,196 1995............................................ 8,163 1996............................................ 8,726 1997............................................ 5,196 1998 (through June 30)..........................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $67,600 1996........................................... 68,988 1997........................................... 73,266 1998 (through June 30)......................... 39,322
If the offer had been made in such prior periods, there would not have been any material difference in the compensation and distributions that would have been paid to the general partner of your partnership, or the company paid to the property manager or AIMCO and its affiliates. S-80 3887 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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. S-81 3888 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS YEAR ENDED DECEMBER 31, 1997 INDEX FINANCIAL STATEMENT
FINANCIAL STATEMENTS OF STURBROOK INVESTORS, LTD. PAGE ------------------------------------------------- ---- Condensed Balance Sheet as of June 30, 1998 (Unaudited)..... F-2 Condensed Statement of Operations for the six months ended June 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (Unaudited)........................ F-4 Statements of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis as of December 31, 1997 (Unaudited).......................................... F-5 Statements of Revenues and Expenses -- Federal Income Tax Basis for the year ended December 31, 1997 (Unaudited).... F-6 Statement of Changes in Partners' Deficit -- Federal Income Tax Basis for the year ended December 31, 1997............ F-7 Statements of Cash Flows -- Federal Income Tax Basis for the year ended December 31, 1997 and 1996 (Unaudited)......... F-8 Notes to Financial Statements -- Federal Income Tax Basis (Unaudited)............................................... F-9 Statements of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis as of December 31, 1996 and 1995 (Unaudited)................................. F-13 Statements of Revenues and Expenses -- Federal Income Tax Basis for the year ended December 31, 1996 (Unaudited).... F-14 Statement of Changes in Partners' Deficit -- Federal Income Tax Basis for the year ended December 31, 1996............ F-15 Statements of Cash Flows -- Federal Income Tax Basis for the year ended December 31, 1996 (Unaudited).................. F-16 Notes to Financial Statements -- Federal Income Tax Basis (Unaudited)............................................... F-17 Statements of Assets, Liabilities and Partners' Deficit -- Federal Income Tax Basis as of December 31, 1995 (Unaudited).......................................... F-21 Statements of Revenues and Expenses -- Federal Income Tax Basis for the year ended December 31, 1995 (Unaudited).... F-22 Statement of Changes in Partners' Deficit -- Federal Income Tax Basis for the year ended December 31, 1995............ F-23 Statements of Cash Flows -- Federal Income Tax Basis for the year ended December 31, 1995 (Unaudited).................. F-24 Notes to Financial Statements -- Federal Income Tax Basis (Unaudited)............................................... F-25
F-1 3889 STURBROOK INVESTORS, LTD. CONDENSED BALANCE SHEET -- FEDERAL INCOME TAX BASIS (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 169,403 Receivables and Deposits.................................... 64,831 Syndication fees............................................ 240,500 Restricted Escrows.......................................... 230,222 Other Assets................................................ 78,076 Investment Property: Land...................................................... $ 545,718 Building and related personal property.................... 5,587,855 ----------- 6,133,573 Less: Accumulated depreciation............................ (4,805,709) 1,327,864 ----------- ----------- Total Assets...................................... $ 2,110,896 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ 2,899 Other Accrued Liabilities................................... 20,455 Property Taxes Payable...................................... -- Tenant Security Deposits.................................... 49,746 Notes Payable............................................... 3,895,945 Partners' (Deficit)......................................... (1,858,149) ----------- Total Liabilities and Partners' Capital........... $ 2,110,896 ===========
F-2 3890 STURBROOK INVESTORS, LTD. CONDENSED STATEMENT OF OPERATIONS -- FEDERAL INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $730,096 $662,822 Other Income.............................................. 41,730 34,082 -------- -------- Total Revenues.................................... 771,826 696,904 Expenses: Operating Expenses........................................ 267,375 377,886 General and Administrative Expenses....................... 13,663 12,320 Depreciation Expense...................................... 54,142 54,142 Interest Expense.......................................... 153,271 159,952 Property Tax Expense...................................... 36,768 37,109 -------- -------- Total Expenses.................................... 525,219 641,409 Net Income........................................ $246,607 $ 55,495 ======== ========
F-3 3891 STURBROOK INVESTORS, LTD. CONDENSED STATEMENT OF CASH FLOWS -- FEDERAL INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30 ------------------------- 1998 1997 ----------- ----------- Operating Activities: Net Income (loss)......................................... $ 246,607 $ 55,495 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 54,142 54,142 Changes in accounts: Receivables and deposits and other assets............ (7,353) (41,262) Accounts Payable and accrued expenses................ (23,382) 92,773 --------- --------- Net cash provided by (used in) operating activities...................................... 270,014 161,148 --------- --------- Investing Activities Property improvements and replacements.................... (96,046) (261,319) Net (increase)/decrease in restricted escrows............. (38,730) (4,943) --------- --------- Net cash provided by (used in) investing activities....... (134,776) (266,262) --------- --------- Financing Activities Distributions to partners Payments on mortgage...................................... (62,799) (58,217) --------- --------- Net cash provided by (used in) financing activities...................................... (62,799) (58,217) --------- --------- Net increase (decrease) in cash and cash equivalents..................................... 72,439 (163,331) Cash and cash equivalents at beginning of year.............. 96,964 203,662 --------- --------- Cash and cash equivalents at end of period.................. $ 169,403 $ 40,331 ========= =========
NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Sturbrook Investors, LTD. as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-4 3892 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED) DECEMBER 31, 1997 ASSETS Cash and cash equivalents................................... $ 96,964 Receivables and deposits (Note B)........................... 60,054 Restricted escrows (Note B)................................. 191,492 Syndication costs (Note B).................................. 240,500 Loan costs, net of accumulated amortization of $77,946 (Note B)........................................................ 75,390 Apartment property, at cost (Notes B and C): Land...................................................... $ 534,853 Buildings and related personal property................... 5,502,674 ----------- 6,037,527 Less accumulated depreciation............................. (4,751,567) 1,285,960 ----------- ----------- $ 1,950,360 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 24,086 Accrued interest.......................................... 13,637 Other accrued liabilities................................. 9,015 Mortgage notes payable (Note C)........................... 3,958,744 Tenant security deposit liabilities....................... 49,636 ----------- 4,055,188 Partners' deficit: Limited Partners.......................................... $(2,054,280) General Partners.......................................... (50,478) (2,104,758) ----------- ----------- $ 1,950,360 ===========
F-5 3893 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF REVENUES AND EXPENSES -- FEDERAL INCOME TAX BASIS (UNAUDITED) YEAR ENDED DECEMBER 31, 1997 Revenues: Rental income............................................. $1,398,545 Other income.............................................. 81,103 ---------- 1,479,648 Expenses: Interest.................................................. $364,392 Depreciation.............................................. 108,283 Operating (Note D)........................................ 465,098 General and administrative................................ 16,459 Maintenance............................................... 255,825 Property taxes............................................ 74,862 1,284,919 -------- ---------- Excess of revenues over expenses............................ $ 194,729 ==========
F-6 3894 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- ----------- ----------- Partners' deficit at December 31, 1996................ $(52,425) $(2,247,062) $(2,299,487) Excess of revenues over expenses.................... 1,947 192,782 194,729 -------- ----------- ----------- Partners' deficit at December 31, 1997................ $(50,478) $(2,054,280) $(2,104,758) ======== =========== ===========
F-7 3895 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CASH FLOWS -- FEDERAL INCOME TAX BASIS (UNAUDITED) YEAR ENDED DECEMBER 31, 1997 Operating activities Excess of revenues over expenses............................ $ 194,729 Adjustments to reconcile excess of revenues over expenses to net cash provided by operating activities: Depreciation........................................... 108,283 Amortization of loan costs and discount................ 46,736 Changes in accounts: Receivables and deposits............................. (20,616) Other assets......................................... 2,556 Accounts payable and accrued liabilities............. (3,830) Tenant security deposit liabilities.................. 19,786 --------- Net cash provided by operating activities................... 347,644 Investing activities Withdrawals from restricted escrows......................... 49,877 Property improvements and replacements...................... (355,736) --------- Net cash used in investing activities....................... (305,859) Financing activities Payments on mortgage notes payable.......................... (118,683) --------- Net decrease in cash and cash equivalents................... (76,898) Cash and cash equivalents at December 31, 1996.............. 173,862 --------- Cash and cash equivalents at December 31, 1997.............. $ 96,964 ========= Supplemental disclosure of cash flow information Cash paid during the year for interest...................... $ 317,656 =========
F-8 3896 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) DECEMBER 31, 1997 NOTE A -- ORGANIZATION Description of Partnership Sturbrook Investors, Ltd., a California limited partnership (the "Partnership"), was formed in October 1981 to acquire and operate a 229-unit apartment complex in Richmond, Virginia. This property was acquired from Calmark Asset Management, Inc. (CAMI), an affiliate of the General Partner, Sturbrook Investors, Inc., a California corporation. In January 1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc., purchased all of the outstanding stock of the Corporate General Partner and assumed the role and obligations of the Managing General Partner of the Partnership. The Partnership will terminate on December 31, 2031 unless terminated sooner by the retirement or dissolution of the General Partner or unless the Partners elect to continue the Partnership. Allocations to Partners In general, income and losses from operations and losses upon sale of the property and/or dissolution of the Partnership are allocated 1% to the General Partner and 99% to the Limited Partners. Income from disposition or partial disposition of the Partnership's property and income upon termination and liquidation of the Partnership will be allocated as follows: a. To all partners until they have been allocated an amount attributable to the recapture of deductions taken that have been previously allocated to them with respect to assets sold. b. To all partners until they have been allocated sufficient income to recover any losses previously allocated to them. c. Any remaining income will be allocated so as to produce a 5:14 ratio between the aggregate positive adjusted capital account balances of the General Partner and the aggregate positive adjusted capital account balances of the Limited Partners after accounting for the distributions described below. Cash Distributions Net cash from operations is to be distributed not less than quarterly and not later than ninety days after the end of each fiscal quarter of the Partnership in the following order of priority: a. 1% to the General Partner and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to an 8% per annum cumulative (but not compounded) return on their adjusted investment interest (as defined). b. The remainder is allocated 25% to the General Partner and 75% to the Limited Partners as a class. In general, any proceeds remaining after the sale of the properties and dissolution of the Partnership shall be distributed to the Partners in accordance with their capital accounts after payment of certain items specified in the Partnership Agreement. NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Accounting The Partnership's financial statements are prepared using the tax accrual method of accounting as set forth in the Federal income tax code and regulations. This method of accounting differs from generally F-9 3897 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) accepted accounting principles primarily in the timing of recognition of revenue and certain expenses, recognition of certain costs of the Project, methods of depreciation and useful lives of assets, and recognition and amortization of deferred fees. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determinations by taxing authorities. Apartment Property The apartment property is stated at cost. Depreciation of the apartment property has been provided using the accelerated cost recovery method (1) for real property over 15 years for additions prior to March 16, 1984 and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 7 years. Restricted Escrows Reserve Account A general Reserve Account was established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) to the reserve account until it equals $1,000 per apartment unit or $229,000 in total. The balance at December 31, 1997 is $191,492, which includes interest. Syndication Costs Syndication costs are stated at cost to the Partnership and are not amortizable for Federal income tax purposes, but result in a capital loss upon the dissolution of the Partnership. Leases The Partnership generally leases apartment units for twelve-month terms or less. Cash and cash equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits." Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Loan Costs Loan costs are being amortized on a straight-line basis over the life of the respective loans. F-10 3898 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) Income Taxes Under provisions of the Internal Revenue Code and applicable state and taxation codes, partnerships are generally not subject to income taxes. For tax purposes, any income or loss realized is that of the individual partners, not the Partnership. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising The Partnership expenses the costs of advertising as incurred. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 consist of the following: Mortgage payable to Bank of America, secured by a first deed of trust on the property. This note bears interest at 7.6% per annum. Principal and interest payments of $35,481 are payable monthly, with a balloon payment of $3,726,927 due on November 15, 2002...................................... $3,975,618 Mortgage payable to Bank of America, secured by a second deed of trust on the property. This note bears interest at 7.6% per annum. Interest only payments of $881 are payable monthly, with principal and unpaid interest due on November 15, 2002......................................... 139,037 ---------- 4,114,655 Less unamortized loan discounts............................. (155,911) ---------- $3,958,744 ==========
The discount is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. The mortgage notes payable are non-recourse and require prepayment penalties if repaid prior to maturity and prohibit resale of the property subject to the existing indebtedness. The mortgage notes payable are secured by pledge of the apartment property and by pledge of revenues from the apartment property. Scheduled principal payments of mortgage notes payable subsequent to December 31, are as follows: 1998............................................. $ 128,023 1999............................................. 138,099 2000............................................. 148,968 2001............................................. 160,693 2002............................................. 3,538,872 ---------- $4,114,655 ==========
F-11 3899 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES Property management fees of $73,266 (included in operating expenses) and reimbursements for general partner expenses of $5,196 (included in general and administrative expenses) are included in the statement of revenues and expenses -- Federal income tax basis and relate to services provided by affiliates of the Partnership's Managing General Partner. F-12 3900 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED) DECEMBER 31, 1996 ASSETS Cash: Unrestricted.............................................. $ 173,862 Restricted -- tenant security deposits.................... 29,800 $ 203,662 ----------- Accounts receivable......................................... 2,726 Restricted escrows (Note B)................................. 241,369 Escrow deposits for taxes and insurance..................... 6,912 Syndication costs (Note B).................................. 240,500 Other assets................................................ 2,556 Loan costs, net of accumulated amortization of $63,468 (Note B)........................................................ 89,868 Apartment property, at cost (Notes B and C): Land...................................................... 534,853 Buildings and related personal property................... 5,146,938 ----------- 5,681,791 Less accumulated depreciation............................. (4,643,284) 1,038,507 ----------- ----------- $ 1,826,100 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 27,917 Accrued interest.......................................... 13,636 Other accrued liabilities................................. 9,015 Mortgage notes payable (Note C)........................... 4,045,169 Tenant security deposits.................................. 29,850 ----------- 4,125,587 Partners' deficit Limited Partners.......................................... $(2,247,062) General Partners.......................................... (52,425) (2,299,487) ----------- ----------- $ 1,826,100 ===========
F-13 3901 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF REVENUES AND EXPENSES -- FEDERAL INCOME TAX BASIS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 Revenues: Rental income............................................. $1,308,562 Other income.............................................. 73,404 ---------- 1,381,966 Expenses: Interest.................................................. $373,880 Depreciation.............................................. 248,991 Operating (Note D)........................................ 440,897 General and administrative................................ 13,783 Maintenance............................................... 299,657 Property taxes............................................ 69,016 1,446,224 -------- ---------- Excess of expenses over revenues............................ $ (64,258) ==========
F-14 3902 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- ----------- ----------- Partners' deficit at December 31, 1995................ $(51,782) $(2,183,447) $(2,235,229) Excess of expenses over revenues.................... (643) (63,615) (64,258) -------- ----------- ----------- Partners' deficit at December 31, 1996................ $(52,425) $(2,247,062) $(2,299,487) ======== =========== ===========
F-15 3903 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CASH FLOWS -- FEDERAL INCOME TAX BASIS (UNAUDITED) YEAR ENDED DECEMBER 31, 1996 Operating activities Excess of expenses over revenues.......................... $ (64,258) Adjustments to reconcile excess of expenses over revenues to net cash provided by operating activities: Depreciation........................................... 248,991 Amortization of loan costs and discount................ 47,564 Changes in accounts: Restricted cash...................................... 3,985 Accounts receivable.................................. (2,252) Escrow deposits for taxes and insurance.............. (723) Other assets......................................... (2,556) Accounts payable and accrued liabilities............. (3,739) Tenant security deposits............................. (2,337) --------- Net cash provided by operating activities......... 224,675 Investing activities Deposits to restricted escrows............................ (9,287) Receipts from restricted escrows.......................... 12,700 Property improvements and replacements.................... (153,420) --------- Net cash used in investing activities............. (150,007) Financing activities Payments on mortgage notes payable........................ (110,023) --------- Net decrease in cash...................................... (35,355) Cash at December 31, 1995................................. 209,217 --------- Cash at December 31, 1996................................. $ 173,862 ========= Supplemental disclosure of cash flow information Cash paid for interest expense............................ $ 326,316 =========
F-16 3904 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) DECEMBER 31, 1996 NOTE A -- ORGANIZATION Description of Partnership Sturbrook Investors, Ltd., a California limited partnership (the "Partnership"), was formed in October 1981 to acquire and operate a 229-unit apartment complex in Richmond, Virginia. This property was acquired from Calmark Asset Management, Inc. (CAMI), an affiliate of the General Partner, Sturbrook, Investors, Inc., a California corporation. In January 1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc., purchased all of the outstanding stock of the Corporate General Partner and assumed the role and obligations of Managing General Partner of the Partnership. The Partnership will terminate on December 31, 2031 unless terminated sooner by the retirement or dissolution of the General Partner or unless the Partners elect to continue the Partnership. Allocations to Partners In general, income and losses from operations and losses upon sale of the property and/or dissolution of the Partnership are allocated 1% to the General Partner and 99% to the Limited Partners. Income from disposition or partial disposition of the Partnership's property and income upon termination and liquidation of the Partnership will be allocated as follows: a. To all partners until they have been allocated an amount attributable to the recapture of deductions taken that have been previously allocated to them with respect to assets sold. b. To all partners until they have been allocated sufficient income to recover any losses previously allocated to them. c. Any remaining income will be allocated so as to produce a 5:14 ratio between the aggregate positive adjusted capital account balances of the General Partner and the aggregate positive adjusted capital account balances of the Limited Partners after accounting for the distributions described below. Cash Distributions Net cash from operations is to be distributed not less than quarterly and not later than ninety days after the end of each fiscal quarter of the Partnership in the following order of priority: a. 1% to the General Partner and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to an 8% per annum cumulative (but not compounded) return on their adjusted investment interest (as defined). b. The remainder is allocated 25% to the General Partner and 75% to the Limited Partners as a class. In general, any proceeds remaining after the sale of the properties and dissolution of the Partnership shall be distributed to the Partners in accordance with their capital accounts after payment of certain items specified in the Partnership Agreement. NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Accounting The Partnership's financial statements are prepared using the tax accrual method of accounting as set forth in the Federal income tax code and regulations. This method of accounting differs from generally F-17 3905 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) accepted accounting principles primarily in the timing of recognition of revenue and certain expenses, recognition of certain costs of the Project, methods of depreciation and useful lives of assets, and recognition and amortization of deferred fees. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determination by taxing authorities. Apartment Property The apartment property is stated at cost. Depreciation of the apartment property has been provided using the accelerated cost recovery method (1) for real property over 15 years for additions prior to March 16, 1984 and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 7 years. Restricted Escrows Capital Improvement Account At December 31, 1996, the balance remaining in the "capital improvement escrow" was $8,263. Upon completion of the scheduled property improvements, any excess funds will be returned for property operations. Reserve Account In addition to the Capital Improvement Account, a general Reserve Account was established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) to the reserve account until it equals $1,000 per apartment unit or $229,000 in total. The balance at December 31, 1996 is $233,106, which includes interest. Syndication Costs Syndication costs are stated at cost to the Partnership and are not amortizable for Federal income tax purposes, but result in a capital loss upon the dissolution of the Partnership. Leases The Partnership generally leases apartment units for twelve-month terms or less. Cash The Partnership considers only unrestricted cash to be cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. F-18 3906 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) Present Value Discounts Periodically, the Partnership incurs debt at below market rates for similar debt. Present value discounts are recorded on the basis of prevailing market rates and are amortized on a straight-line method over the life of the related debt. Loan Costs Loan costs are being amortized on a straight-line basis over the life of the respective loans. Income Taxes Under provisions of the Internal Revenue Code and applicable state revenue and taxation codes, partnerships are generally not subject to income taxes. For tax purposes, any income or loss realized is that of the individual partners, not the Partnership. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising The Partnership expenses the costs of advertising as incurred. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 consist of the following: Mortgage payable to Bank of America, secured by a first deed of trust on the property. This note bears interest at 7.6% per annum. Principal and interest payments of $35,481 are payable monthly, with a balloon payment of $3,276,927 due on November 15, 2002...................................... $4,094,301 Mortgage payable to Bank of America, secured by a second deed of trust on the property. This note bears interest at 7.6% per annum. Interest only payments of $881 are payable monthly, with the principal and unpaid interest due on November 15, 2002......................................... 139,037 ---------- 4,233,338 Less unamortized loan discounts............................. (188,169) ---------- $4,045,169 ==========
The discount is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. The mortgage notes payable are non-recourse and require prepayment penalties if repaid prior to maturity and prohibit resale of the property subject to the existing indebtedness. The mortgage notes payable are secured by pledge of the apartment property. F-19 3907 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) Scheduled principal payments of mortgage notes payable subsequent to December 31, are as follows: 1997............................................. $ 118,683 1998............................................. 128,023 1999............................................. 138,099 2000............................................. 148,968 2001............................................. 160,693 Thereafter....................................... 3,538,872 ---------- $4,233,338 ==========
NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES Property management fees (included in operating expenses) of $68,988 and reimbursements for general partner expenses of $8,726 (included in general and administrative expenses) are included in the statement of revenues and expenses -- Federal income tax basis and relate to services provided by affiliates of the Partnership's Managing General Partner. F-20 3908 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED) DECEMBER 31, 1995 ASSETS Cash: Unrestricted.............................................. $ 209,217 Restricted -- tenant security deposits.................... 33,785 $ 243,002 ----------- Accounts receivable......................................... 474 Restricted escrows (Note 2)................................. 244,782 Escrow deposits for taxes and insurance..................... 6,189 Syndication costs (Note 2).................................. 240,500 Loan costs, net of accumulated amortization of $48,161 (Note 2)........................................................ 105,175 Apartment property, at cost (Notes 2 and 3): Land...................................................... 534,853 Buildings and related personal property................... 4,993,518 ----------- 5,528,371 Less accumulated depreciation............................. (4,394,293) 1,134,078 ----------- ----------- $ 1,974,200 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 31,654 Accrued interest.......................................... 13,637 Other accrued liabilities................................. 9,016 Mortgage notes payable (Note 3)........................... 4,122,935 Tenant security deposits.................................. 32,187 ----------- 4,209,429 Partners' deficit Limited Partners.......................................... $(2,183,447) General Partners.......................................... (51,782) (2,235,229) ----------- ----------- $ 1,194,200 ===========
F-21 3909 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF REVENUES AND EXPENSES -- FEDERAL INCOME TAX BASIS (UNAUDITED) YEAR ENDED DECEMBER 31, 1995 Revenues: Rental income............................................. $1,299,707 Other income.............................................. 71,504 ---------- 1,371,211 Expenses: Interest.................................................. $366,601 Depreciation.............................................. 351,685 Amortization of loan costs................................ 15,391 Payroll................................................... 124,889 Utilities................................................. 84,603 Repairs and maintenance................................... 225,675 Property taxes............................................ 62,487 Management fees (Note 4).................................. 67,600 Insurance................................................. 31,321 Advertising............................................... 18,444 Other..................................................... 89,317 1,438,013 -------- ---------- Excess of expenses over revenues............................ $ (66,802) ==========
F-22 3910 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' DEFICIT -- FEDERAL INCOME TAX BASIS (UNAUDITED)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- ----------- ----------- Partners' deficit at December 31, 1994................ $(51,114) $(2,117,313) $(2,168,427) Excess of expenses over revenues.................... (668) (66,134) (66,802) -------- ----------- ----------- Partners' deficit at December 31, 1995................ $(51,782) $(2,183,447) $(2,235,229) ======== =========== ===========
F-23 3911 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF CASH FLOWS -- FEDERAL INCOME TAX BASIS (UNAUDITED) YEAR ENDED DECEMBER 31, 1995 Operating activities Excess of expenses over revenues.......................... $ (66,802) Adjustments to reconcile excess of expenses over revenues to net cash provided by operating activities: Depreciation........................................... 351,685 Amortization of loan costs and discount................ 47,650 Changes in accounts: Restricted cash...................................... 2,505 Accounts receivable.................................. 3,097 Escrow deposits for taxes and insurance.............. (542) Accounts payable..................................... 20,073 Other accrued liabilities............................ 362 Tenant security deposits............................. (3,737) --------- Net cash provided by operating activities......... 354,291 Investing activities Deposits to restricted escrows............................ (8,443) Receipts from restricted escrows.......................... 14,413 Property improvements and replacements.................... (194,750) --------- Net cash used in investing activities............. (188,780) Financing activities Payments on mortgage notes payable........................ (101,996) --------- Net increase in cash...................................... 63,515 Cash at December 31, 1994................................. 145,702 --------- Cash at December 31, 1995................................. $ 209,217 ========= Supplemental disclosure of cash flow information Cash paid for interest expense............................ $ 334,334 =========
F-24 3912 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) DECEMBER 31, 1995 1. ORGANIZATION Description of Partnership Sturbrook Investors, Ltd., a California limited partnership (the "Partnership"), was formed in October 1981 to acquire and operate a 229-unit apartment complex in Richmond, Virginia. This property was acquired from Calmark Asset Management, Inc. (CAMI), an affiliate of the General Partner, Sturbrook Investors, Inc., a California corporation. In January 1993, MAE California, Inc., an affiliate of Insignia Financial Group, Inc., purchased all of the outstanding stock of the Corporate General Partner and assumed the role and obligations of the Managing General Partner of the Partnership. The Partnership will terminate on December 31, 2031 unless terminated sooner by the retirement or dissolution of the General Partner or unless the Partners elect to continue the Partnership. Allocations to Partners In general, income and losses from operations and losses upon sale of the property and/or dissolution of the Partnership are allocated 1% to the General Partner and 99% to the Limited Partners. Income from disposition or partial disposition of the Partnership's property and income upon termination and liquidation of the Partnership will be allocated as follows: a. To all partners until they have been allocated an amount attributable to the recapture of deductions taken that have been previously allocated to them with respect to assets sold. b. To all partners until they have been allocated sufficient income to recover any losses previously allocated to them. c. Any remaining income will be allocated so as to produce a 5:14 ratio between the aggregate positive adjusted capital account balances of the General Partner and the aggregate positive adjusted capital account balances of the Limited Partners after accounting for the distributions described below. Cash Distributions Net cash from operations is to be distributed not less than quarterly and not later than ninety days after the end of each fiscal quarter of the Partnership in the following order of priority: a. 1% to the General Partner and 99% to the Limited Partners as a class until such time as the Limited Partners have received in the aggregate an amount equal to an 8% per annum cumulative (but not compounded) return on their adjusted investment interest (as defined). b. The remainder is allocated 25% to the General Partner and 75% to the Limited Partners as a class. In general, any proceeds remaining after the date of the properties and dissolution of the Partnership shall be distributed to the Partners in accordance with their capital accounts after payment of certain items specified in the Partnership Agreement. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Accounting The Partnership's financial statements are prepared using the tax accrual method of accounting as set forth in the Federal income tax code and regulations. This method of accounting differs from generally F-25 3913 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) accepted accounting principles primarily in the timing of recognition of revenue and certain expenses, recognition of certain costs of the Project, methods of depreciation and useful lives of assets, and recognition and amortization of deferred fees. The Partnership's Federal income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is susceptible to varying interpretations, amounts reported in the financial statements could be changed at a later date upon final determination by taxing authorities. Apartment Property The apartment property is stated at cost. Depreciation of the apartment property has been provided using the accelerated cost recovery method (1) for real property over 15 years for additions prior to March 15, 1984 and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 7 years. Restricted Escrows Capital Improvement Account At December 31, 1995, the balance remaining in the "capital improvement escrow" was $10,253. Upon completion of the scheduled property improvements, any excess funds will be returned for property operations. Reserve Account In addition to the Capital Improvement Account, a general Reserve Account was established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) to the reserve account until it equals $1,000 per apartment unit or $229,000 in total. The balance at December 31, 1995 is $234,529, which includes interest. Syndication Costs Syndication costs are stated at cost to the Partnership and are not amortizable for Federal income tax purposes, but result in a capital loss upon the dissolution of the Partnership. Leases The Partnership generally leases apartment units for twelve-month terms or less. Cash The Partnership considers only unrestricted cash to be cash. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. F-26 3914 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) Present Value Discounts Periodically, the Partnership incurs debt at below market rates for similar debt. Present value discounts are recorded on the basis of prevailing market rates and are amortized on a straight-line method over the life of the related debt. Loan Costs Loan costs are being amortized on a straight-line basis over the life of the respective loans. Income Taxes Under provisions of the Internal Revenue Code and applicable state revenue and taxation codes, partnerships are generally not subject to income taxes. For tax purposes, any income or loss realized is that of the individual partners, not the Partnership. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising The Partnership expenses the costs of advertising as incurred. 3. MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1995 consist of the following: Mortgage payable to Bank of America, secured by a first deed of trust on the property. This note bears interest at 7.6% per annum. Principal and interest payments of $35,481 are payable monthly, with a balloon payment of $3,276,927 due on November 15, 2002...................................... $4,204,324 Mortgage payable to Bank of America, secured by a second deed of trust on the property. This note bears interest at 7.6% per annum. Interest only payments of $881 are payable monthly, with the principal and unpaid interest due on November 15, 2002......................................... 139,037 ---------- 4,343,361 Less unamortized loan discounts............................. (220,426) ---------- $4,122,935 ==========
The discount is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. The mortgage notes payable are non-recourse and require prepayment penalties if repaid prior to maturity and prohibit resale of the property subject to the existing indebtedness. The mortgage notes payable are secured by pledge of the apartment property and by pledge of revenues from the apartment property. F-27 3915 STURBROOK INVESTORS, LTD. (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- FEDERAL INCOME TAX BASIS (UNAUDITED) -- (CONTINUED) Scheduled principal payments of mortgage notes payable subsequent to December 31, are as follows: 1996............................................. $ 110,023 1997............................................. 118,683 1998............................................. 128,023 1999............................................. 138,099 2000............................................. 148,968 Thereafter....................................... 3,699,565 ---------- $4,343,361 ==========
4. TRANSACTIONS WITH AFFILIATED PARTIES Property management fees of $67,600 and reimbursements for general partner expenses of $8,613 (included in other expenses) are included in the statement of revenues and expenses -- Federal income tax basis and relate to services provided by affiliates of the Partnership's Managing General Partner. 5. CONTINGENCY The Partnership's apartment property is being adversely affected by soil erosion from an adjacent creek. Cost estimates to repair the damage and to prevent further erosion have not been determined. Expenditures for repairs and related preventive maintenance will be incurred by the Partnership and are not reimbursable by insurance. Although a liability has not been recorded for these expenditures, management does not believe that the amounts will have a material impact on the Partnership. F-28 3916 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 3917 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 3918 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 September , 1998 A-3 3919 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998 AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF SYCAMORE CREEK 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 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 3920 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 Description of Tax-Deferral % Preferred OP Units...................................... S-15 Description of Class I Preferred Stock....... S-15 Comparison of Tax-Deferral % Preferred OP Units and Class I Preferred Stock.......... S-15 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 Sycamore Creek Associates, 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-29 Expected Benefits of the Offer............... S-30 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-35 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-36 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
PAGE ---- Effects of the Offer......................... S-40 Certain Legal Matters........................ S-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41 DESCRIPTION OF PREFERRED OP UNITS.............. S-41 General...................................... S-41 Ranking...................................... S-41 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70
i 3921
PAGE ---- Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71 Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership............. S-74
PAGE ---- Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76 Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 3922 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 Sycamore Creek Associates, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 3923 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 3924 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 $0 per unit 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). 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 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. 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 S-3 3925 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 3926 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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 3927 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 3928 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. 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. 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 5 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. 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 S-7 3929 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. 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. Although your partnership did not make any distributions in 1998, it might make distributions in the future. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 3930 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 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 S-9 3931 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 3932 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, 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. 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 S-11 3933 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units in your partnership. In the absence of such consent, your only 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 S-12 3934 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 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). Your partnership has not paid any distributions on your units since the inception of your partnership. - 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. S-13 3935 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 3936 - 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 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 S-15 3937 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 3938 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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 Consideration 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-1 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 S-17 3939 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 is not subject to such limitations. 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 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 generated in that capacity. The property manager received management fees of $99,666 in 1996, $101,578 in 1997 and $51,911 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 Your Partnership and its Property. Sycamore Creek Associates, L.P. is a Delaware limited partnership which was formed on July 13, 1984 for the purpose of owning and operating a single apartment property located in Cincinnati, Ohio, known as "Sycamore Creek Apartments." In 1984, it completed a private placement of units. Your partnership has no employees. Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. Pursuant to the management agreement between the property manager and S-18 3940 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2008, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $7,213,952, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $256,342, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 3941 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 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 3942
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 3943 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 the exchange offers.
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............................. (6,634) (20,663) -------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) -------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) -------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- -------- --------- Net income........................................ $ 10,579 $ (38,135) ======== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 3944
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 3945 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 3946 SUMMARY FINANCIAL INFORMATION OF SYCAMORE CREEK ASSOCIATES, L.P. The summary financial information of Sycamore Creek Associates, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Sycamore Creek Associates, L.P. for the years ended December 31, 1997, 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 of Your Partnership" included herein. See "Index to Financial Statements." SYCAMORE CREEK ASSOCIATES, L.P.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues......... $ 991,909 $ 942,631 $ 2,041,188 $ 2,004,396 $ 1,945,886 $ 1,962,728 $ 1,949,820 Net Income/(Loss)............ 67,732 80,400 163,481 (46,944) (130,568) (166,329) (322,865) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation... 3,689,304 3,504,637 3,742,574 3,520,681 3,615,857 3,784,245 4,133,574 Total Assets........... 4,188,713 4,062,304 4,514,857 4,461,521 4,314,024 4,598,813 4,847,640 Mortgage Notes Payable, including Accrued Interest................... 7,175,106 7,344,518 7,261,097 7,422,113 7,569,042 7,704,803 7,828,473 Partners' Capital/(Deficit).......... (3,399,667) (3,550,480) (3,467,399) (3,630,880) (3,583,936) (3,453,368) (3,287,039)
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 YOUR 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 $0
S-25 3947 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. 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 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 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. S-26 3948 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 Code. 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 therefore 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 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. 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 S-27 3949 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25, and the 1998 distributions of $0 with respect to your units, 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 S-28 3950 AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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). S-29 3951 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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. Your Partnership has not paid any distributions on your units since the inception of your partnership. S-30 3952 However, one class of outstanding Partnership Preferred Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to five 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 six months ended June 30, 1998, we paid distributions of $1.125 on each of the Common OP Units (equivalent to $2.25 on an annual basis). Your Partnership has not paid any distributions on your units since the inception of your partnership. 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 3953 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 3954 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 3955 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. 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 S-34 3956 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." 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. 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. S-35 3957 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, (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 9:00 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 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, Denver, Colorado 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. S-36 3958 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-37 3959 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 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 class 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 S-38 3960 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 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 S-39 3961 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-40 3962 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. 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. DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. S-41 3963 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 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 S-42 3964 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 payment. 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 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 S-43 3965 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-44 3966 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-45 3967 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-46 3968 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-47 3969 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-48 3970 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-49 3971 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 3972 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-51 3973 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 3974 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 3975 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 3976 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 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, a third party expert, 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 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. Based on anticipated annualized distributions of $0.00 with respect to the Preferred OP Units, current annualized distributions of $2.25 with respect to the Common OP Units and the 1998 distributions of $ with respect to your units, distributions with respect to the Preferred OP Units and Common OP Units being offered are expected to be , immediately following the 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 S-55 3977 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................................ Not available Estimated Liquidation Proceeds............................ $
S-56 3978 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. 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-1 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-57 3979 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 3980 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 September 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 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 property was 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, S-59 3981 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 3982 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 under The AIMCO Operating Partnership is organized as a Delaware law for the purpose of owning and managing Delaware limited partnership. The AIMCO Operating Sycamore Creek Apartments. 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 receive until December 31, 2093, unless the AIMCO Operating regular cash distributions out of your partnership's Partnership is dissolved sooner pursuant to the terms of Distributable Cash (as defined in your partnership's the AIMCO Operating Partnership's agreement of limited agreement of limited partnership). The termination date partnership (the "AIMCO Operating Partnership Agreement") of your partnership is December 31, 2008. or as provided by law. See "Description of 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, develop, The purpose of the AIMCO Operating Partnership is to operate, lease, manage and hold for investment and the conduct any business that may be lawfully conducted by a production of income your partnership's property. Subject limited partnership organized pursuant to the Delaware to restrictions contained in your partnership's agreement Revised Uniform Limited Partnership Act (as amended from of limited partnership, your partnership may perform all time to time, or any successor to such statute) (the acts necessary or appropriate in connection therewith and "Delaware Limited Partnership Act"), provided that such reasonably related thereto, including acquiring business is to be conducted in a manner that permits additional real or personal property, borrowing money and AIMCO to be qualified as a REIT, unless AIMCO ceases to creating liens. 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-61 3983 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized to The general partner is authorized to issue additional issue additional limited partnership interests in your partnership interests in the AIMCO Operating Partnership partnership and may admit up to 35 additional limited for any partnership purpose from time to time to the partners by selling not more than 46 units for cash and limited partners and to other persons, and to admit such notes to selected persons who fulfill the requirements other persons as additional limited partners, on terms set forth in your partnership's agreement of limited and conditions and for such capital contributions as may partnership. The capital contribution need not be equal be established by the general partner in its sole for all limited partners. Upon admission of such limited discretion. The net capital contribution need not be partners, an amendment to the Certificate of your equal for all OP Unitholders. No action or consent by the partnership shall be executed and acknowledged by the OP Unitholders is required in connection with the general partner, the original limited partner and by the admission of any additional OP Unitholder. See general partner as attorney-in-fact for the additional "Description of OP Units -- Management by the AIMCO GP" limited partners. 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, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of limited The AIMCO Operating Partnership may lend or contribute partnership, the general partner is authorized in funds or other assets to its subsidiaries or other connection with the management of your partnership to persons in which it has an equity investment, and such acquire goods from, or utilize the services of, firms and persons may borrow funds from the AIMCO Operating persons affiliated with the general partner in performing Partnership, on terms and conditions established in the its duties and responsibilities under your partnership's sole and absolute discretion of the general partner. To agreement of limited partnership; provided that terms and the extent consistent with the business purpose of the conditions of such dealings are as favorable as could be AIMCO Operating Partnership and the permitted activities reasonably obtained from third parties offering similar of the general partner, the AIMCO Operating Partnership goods and services of similar quality and reliability. In may transfer assets to joint ventures, limited liability the event the general partner determines that funds are companies, partnerships, corporations, business trusts or reasonably necessary for acquiring or maintaining and other business entities in which it is or thereby becomes protecting the property of your partnership on a participant upon such terms and subject to such condi- commercially reasonable terms from one or more of the tions consistent with the AIMCO Operating Partnership partners without notification to any of the other Agreement and applicable law as the general partner, in partners, and all or a portion of your partnership's its sole and absolute discretion, believes to be property may be conveyed as security for any advisable. Except as expressly permitted by the AIMCO indebtedness, provided, however, that the borrowing from Operating Partnership Agreement, neither the general limited partners will be undertaken only to the extent partner nor any of its affiliates may sell, transfer or allowed by applicable law. The time and amounts of repay- convey any property to the AIMCO Operating Partnership, ment for such loans will be in the sole discretion of the directly or indirectly, except pursuant to transactions general partner and payments of principal and interest that are determined by the general partner in good faith will be fully paid prior to any distribution of funds to to be fair and reasonable. the partners unless such loans contain a specific provision to the contrary. The partner who lends money to your partnership will be considered an unrelated creditor with respect to such loans to the extent allowed by applicable law. Any loans from the general partner or its affiliates will accrue interest at the greater of 2 1/2% over the prime interest rate charged by the Third National Bank in Nashville, adjusted monthly, or the general partner's or its affiliate's actual interest cost in borrowing such amounts.
Borrowing Policies The general partner of your partnership is authorized to The AIMCO Operating Partnership Agreement contains no borrow money in the ordinary course of business and as restrictions on borrowings, and the general partner has security therefore to mortgage all or any part of the full power and authority to borrow money on behalf of the real property of your partnership in addition to AIMCO Operating Partnership. The AIMCO Operating obtaining loans specifically provided for in your Partnership has credit agreements that restrict, among partnership's agreement of limited partnership. Your other things, its ability to incur indebtedness. See partnership may also sell up to $40,000 of "Risk Factors -- Risks of Significant Indebtedness" in mortgage-backed bonds. the accompanying Prospectus.
S-62 3984 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 the limited partners to have access to the with a statement of the purpose of such demand and at current list of the names and addresses of all limited such OP Unitholder's own expense, to obtain a current partners at all reasonable times at the principal office list of the name and last known business, residence or of your partnership. mailing address of the general partner and each other OP Unitholder.
Management Control Subject to the limitations set forth under applicable law All management powers over the business and affairs of and the terms of your partnership's agreement of limited the AIMCO Operating Partnership are vested in AIMCO-GP, partnership, the general partner of your partnership has Inc., which is the general partner. No OP Unitholder has the power to do all things set forth in your any right to participate in or exercise control or partnership's agreement of limited partnership. The management power over the business and affairs of the general partner represents your partnership in all AIMCO Operating Partnership. The OP Unitholders have the transactions with third parties. No limited partner has right to vote on certain matters described under any right or power to take part in any way in the "Comparison of Ownership of Your Units and AIMCO OP management of your partnership business except as may be Units -- Voting Rights" below. The general partner may expressly provided in your partnership's agreement of not be removed by the OP Unitholders with or without limited partnership or by applicable statutes. 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 the partnership, the general partner will not incur any AIMCO Operating Partnership Agreement, the general liability to your partnership or any other partner for partner is not liable to the AIMCO Operating Partnership any mistakes or errors in judgment or for any act or for losses sustained, liabilities incurred or benefits omission believed by it in good faith to be within the not derived as a result of errors in judgment or mistakes scope of authority conferred upon it by your of fact or law of any act or omission if the general partnership's agreement of limited partnership. In partner acted in good faith. The AIMCO Operating addition, your partnership will, to the extent permitted Partnership Agreement provides for indemnification of by law, indemnify and save harmless the general partner AIMCO, or any director or officer of AIMCO (in its against and from any personal loss, liability (including capacity as the previous general partner of the AIMCO attorneys' fees) or damage incurred by it as the result Operating Partnership), the general partner, any officer of any act or omission in its capacity as general partner or director of general partner or the AIMCO Operating unless such loss, liability or damage results from gross Partnership and such other persons as the general partner negligence or willful misconduct of 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 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
S-63 3985 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 has partnership, the limited partners may remove a general exclusive management power over the business and affairs partner for cause following written notice to the general of the AIMCO Operating Partnership. The general partner partner and a failure to cure the injury to your may not be removed as general partner of the AIMCO partnership upon a vote of the limited partners owning a Operating Partnership by the OP Unitholders with or 51% of the outstanding units. A general partner may not without cause. Under the AIMCO Operating Partnership resign without the consent of those persons owning 51% of Agreement, the general partner may, in its sole the units. Such consent is also necessary for the discretion, prevent a transferee of an OP Unit from approval of a new general partner. A limited partner may becoming a substituted limited partner pursuant to the not transfer his interests without the written consent of AIMCO Operating Partnership Agreement. The general the general partners which may be withheld at the sole partner may exercise this right of approval to deter, discretion of the general partners. delay or hamper attempts by persons to acquire a controlling interest in the AIMCO Operating Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Limited partners owning 51% of the units may amend your With the exception of certain circumstances set forth in partnership's agreement of limited partnership, except the AIMCO Operating Partnership Agreement, whereby the that any amendment which adversely affects a limited general partner may, without the consent of the OP partner's interest in your partnership's capital, profits Unitholders, amend the AIMCO Operating Partnership or Distributable Cash must be approved by such limited Agreement, amendments to the AIMCO Operating Partnership partner. On its own motion or the written request of the Agreement require the consent of the holders of a limited partner owning at least 10% of the units, the majority of the outstanding Common OP Units, excluding general partner will submit the proposed amendment to the AIMCO and certain other limited exclusions (a "Majority limited partner together with its recommendation as to in Interest"). Amendments to the AIMCO Operating such proposal. The general partner may require a response Partnership Agreement may be proposed by the general within a specified time, but not less than thirty days partner or by holders of a Majority in Interest. and failure to respond in such time will constitute a Following such proposal, the general partner will submit vote which is consistent with the recommendation of the any proposed amendment to the OP Unitholders. The general limited partners. partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its its partnership interest and reimbursement for all fees services as general partner of the AIMCO Operating and expenses as set forth in your partnership's agreement Partnership. However, the general partner is entitled to of limited partnership, the general partner receives no payments, allocations and distributions in its capacity fee for its services as general partner but may receive as general partner of the AIMCO Operating Partnership. In fees for additional services. Moreover, the general addition, the AIMCO Operating Partnership is responsible partner or certain affiliates may be entitled to for all expenses incurred relating to the AIMCO Operating compensation for additional services rendered. 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-64 3986 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross negligence, partnership, the liability of each of the limited no OP Unitholder has personal liability for the AIMCO partners for its share of the losses or debts of your Operating Partnership's debts and obligations, and partnership is limited to the total capital contribution liability of the OP Unitholders for the AIMCO Operating of such limited partner plus, to the extent that such Partnership's debts and obligations is generally limited limited partner has rightfully received the return of to the amount of their investment in the AIMCO Operating such capital contribution, any sum, not in excess of such Partnership. However, the limitations on the liability of return, necessary to discharge liabilities of your limited partners for the obligations of a limited partnership to all creditors who extended credit before partnership have not been clearly established in some such return; provided that the liability with respect to states. If it were determined that the AIMCO Operating rightfully returned capital contributions is limited to Partnership had been conducting business in any state one year from the date of such return. Notwithstanding without compliance with the applicable limited the foregoing, the original limited partner only maybe partnership statute, or that the right or the exercise of subject to a mandatory assessment of an amount not the right by the holders of OP Units as a group to make exceeding 50% of its total capital contribution as certain amendments to the AIMCO Operating Partnership provided in your partnership's agreement of limited Agreement or to take other action pursuant to the AIMCO partnership. 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, the general partner must act as a fiduciary agreement, Delaware law generally requires a general with respect of the assets and business of your partner of a Delaware limited partnership to adhere to partnership. The general partner must use its best fiduciary duty standards under which it owes its limited efforts to do all things and perform such duties as may partners the highest duties of good faith, fairness and be reasonably necessary to the successful operation of loyalty and which generally prohibit such general partner your partnership. The general partner must devote such of from taking any action or engaging in any transaction as its time and that of its employees to your partnership to which it has a conflict of interest. The AIMCO business as may be reasonably necessary to carry on and Operating Partnership Agreement expressly authorizes the conduct your partnership's business. However, except as general partner to enter into, on behalf of the AIMCO specifically provided in your partnership, the partners Operating Partnership, a right of first opportunity may engage in whatever activities they choose, whether arrangement and other conflict avoidance agreements with the same be competitive with your partnership or various affiliates of the AIMCO Operating Partnership and otherwise, including without limitation, the acquisition, the general partner, on such terms as the general ownership, financing, syndication, development, im- partner, in its sole and absolute discretion, believes provement, leasing, operation, management and brokerage are advisable. The AIMCO Operating Partnership Agreement of real property (including real property that may be in expressly limits the liability of the general partner by the vicinity of and competitive with real property owned providing that the general partner, and its officers and by your partnership), without having or incurring any directors will not be liable or accountable in damages to obligation to disclose or to offer any interest in such the AIMCO Operating Partnership, the limited partners or activities to any party to your partnership's agreement assignees for errors in judgment or mistakes of fact or of limited 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 There are no material difference between the taxation of The AIMCO Operating Partnership is not subject to Federal your partnership and the AIMCO Operating Partnership. income taxes. Instead, each holder of OP Units includes in income its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in 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
S-65 3987 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 51% of the outstanding units, the the holders of the Preferred OP respect to certain limited matters limited 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 limitations; dissolve and terminate Units" in the accompanying transactions such as the your partnership; remove a general Prospectus. So long as any institution of bankruptcy partner for cause, approve the Preferred OP Units are outstand- proceedings, an assignment for the retirement of a general partner, ing, in addition to any other vote benefit of creditors and certain approve the admission of a new or consent of partners required by transfers by the general partner of general partner; and approve or law or by the AIMCO Operating its interest in the AIMCO Operating disapprove the sale of all or a Partnership Agreement, the Partnership or the admission of a material portion of your affirmative vote or consent of successor general partner. partnership's property. A general holders of at least 50% of the partner may cause the dissolution outstanding Preferred OP Units will Under the AIMCO Operating Partner- of your partnership by retiring. In be necessary for effecting any ship Agreement, the general partner such event, the amendment of any of the has
S-66 3988 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS limited partners holding 51% of the provisions of the Partnership Unit the power to effect the aggregate units may, within ninety Designation of the Preferred OP acquisition, sale, transfer, days of such occurrence, vote to Units that materially and adversely exchange or other disposition of continue the business of your affects the rights or preferences any assets of the AIMCO Operating partnership. If no general partner of the holders of the Preferred OP Partnership (including, but not remains in office, all of the Units. The creation or issuance of limited to, the exercise or grant limited partners may elect to any class or series of partnership of any conversion, option, reform your partnership and elect a units, including, without privilege or subscription right or successor general partner whereupon limitation, any partnership units any other right available in your partnership will be dis- that may have rights senior or connection with any assets at any solved and all of the assets and superior to the Preferred OP Units, time held by the AIMCO Operating liabilities of your partnership shall not be deemed to materially Partnership) or the merger, will be contributed to a new adversely affect the rights or consolidation, reorganization or partnership and all parties to your preferences of the holders of other combination of the AIMCO partnership's agreement of limited Preferred OP Units. With respect to Operating Partnership with or into partnership will become parties to the exercise of the above de- another entity, all without the such new partnership. scribed 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 from Distributable $ per Preferred OP Unit; tribute quarterly all, or such Cash will be made quarterly, on or provided, however, that at any time portion as the general partner may about January 15, April 15, July 15 and from time to time on or after in its sole and absolute discretion and October 15 for each fiscal the fifth anniversary of the issue determine, of Available Cash (as year, or for such shorter period as date of the Preferred OP Units, the defined in the AIMCO Operating may be applicable. The AIMCO Operating Partnership may Partnership Agreement) generated by 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. Your dividend rate on the most recently with respect to such quarter, in partnership has not made issued AIMCO non-convertible accordance with their respective distributions in the past and is preferred stock which ranks on a interests in the AIMCO Operating not projected to make distributions parity with its Class H Cumu- Partnership on such record date. in 1998. 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 Available Cash, distributions
S-67 3989 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS on the Preferred OP Units. No upon liquidation or other interest, or sum of money in lieu distributions. See "Per Share and of interest, shall be payable in Per Unit Data" in the accompanying respect of any distribution pay- Prospectus. ment or payments on the Preferred OP Units that may be in arrears. The general partner in its sole and absolute discretion may distribute When distributions are not paid in to the OP Unitholders Available full upon the Preferred OP Units or Cash on a more frequent basis and any Parity Units, all distributions provide for an appropriate record declared upon the Preferred OP date. Units and any Parity Units shall be declared ratably in proportion to The AIMCO Operating Partnership the respective amounts of Agreement requires the general distributions accumulated, accrued partner to take such reasonable and unpaid on the Preferred OP efforts, as determined by it in its Units and such Parity Units. Unless sole and absolute discretion and full cumulative distributions on consistent with AIMCO's the Preferred OP Units have been qualification as a REIT, to cause declared and paid, except in the AIMCO Operating Partnership to limited circumstances, no distribute sufficient amounts to distributions may be declared or enable the general partner to paid or set apart for payment by transfer funds to AIMCO and enable the AIMCO Operating Partnership and AIMCO to pay stockholder dividends no other distribution of cash or that will (i) satisfy the other property may be declared or requirements for qualifying as a made, directly or indirectly, by REIT under the Code and the the AIMCO Operating Partnership Treasury Regulations and (ii) avoid with respect to any Junior Units, any Federal income or excise tax nor 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 and such person Preferred OP Units and the OP Units. The AIMCO Operating Part- will become a substitute limited Preferred OP Units are not listed nership Agreement restricts the partner if: (1) a written on any securities exchange. The transferability of the OP Units. assignment has been duly executed Preferred OP Units are subject to Until the expiration of one year and acknowledged by the assignor restrictions on transfer as set from the date on which an OP and assignee and delivered to the forth in the AIMCO Operating Unitholder acquired OP Units, general partner, (2) the approval Partnership Agreement. subject to certain exceptions, such of the general partner which may be OP Unitholder may not transfer all withheld in the sole discretion and Pursuant to the AIMCO Operating or any portion of its OP Units to which will be withheld if the Partnership Agreement, until the any transferee without the consent general partner reasonably believes expiration of one year from the of the general partner, which that the transfer violates date on which a holder of Preferred consent may be withheld in its sole applicable securities law or result OP Units acquired Preferred OP and absolute discretion. After the in adverse tax consequences, Units, subject to certain expiration of one year, such OP including the termination of your exceptions, such holder of Unitholder has the right to partnership for tax purposes, (3) Preferred OP Units may not transfer transfer all or any portion of its the assignee has agreed to bound by all or any portion of its Pre- OP Units to any person, subject to all of the terms of your ferred OP Units to any transferee the satisfaction of certain partnership's agreement of limited without the consent of the general conditions specified in the AIMCO partnership and absolute discre- partner, which consent may be Operating Partnership Agreement, tion of the general partner has withheld in its sole and absolute including the general partner's been granted, (4) the assignee discretion. After the expiration of right of first refusal. See represents he is at least 18 years one year, such holders of Preferred "Description of OP Units -- of age, is a citizen and resident OP Units has the right to transfer Transfers and Withdrawals" in the of the U.S., has sufficient finan- all or any portion of its Preferred accompanying Prospectus. cial resources to maintain the OP Units to any person, subject to interest acquired and that he is the satisfaction of certain After the first anniversary of not acquiring the interest with a conditions specified in the AIMCO becoming a holder of Common OP view to resell the interest and (5) Operating Partnership Agreement, Units, an OP Unitholder has the the assignor and assignee have including the general partner's right, subject to the terms and complied with such other conditions right of first refusal. conditions of the AIMCO Operating as set forth in your partnership's Partnership Agreement, to re- agreement of
S-68 3990 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS limited partnership. After a one-year holding period, a quire the AIMCO Operating holder may redeem Preferred OP Partnership to redeem all or a There are no redemption rights Units and receive in exchange portion of the Common OP Units held associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 3991 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 generated in that capacity. The property manager received management fees of $99,666 in 1996, $101,578 in 1997 and $51,911 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's 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'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 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-70 3992 YOUR PARTNERSHIP GENERAL Sycamore Creek Associates, L.P. is a Delaware limited partnership. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 72 limited partners of your partnership and a total of 45.99 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on July 13, 1984 for the purpose of owning and operating a single apartment property located in Cincinnati, Ohio, known as "Sycamore Creek Apartments". Your partnership's property consists of 295 apartment units. The total rentable square footage of your partnership's property is 266,350 square feet. Your partnership's property had an average occupancy rate of approximately 89.15% in 1996 and 89.15% in 1997. The average annual rent per apartment unit is approximately $6,311. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $99,666, $101,578 and $51,911, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2008 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 3993 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $7,213,952, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $256,342, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 3994 Below is selected financial information for Sycamore Creek Associates, L.P. taken from the financial statements described above. 1993 amounts have been derived from the audited financial statements which are not included herein. See "Index to Financial Statements."
SYCAMORE CREEK ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 108,254 $ 67,376 $ 176,610 $ 77,913 $ 95,429 $ 195,548 $ 123,421 Land & Building.............. 10,801,102 10,406,050 10,749,179 10,316,901 10,222,790 10,137,293 10,198,903 Accumulated Depreciation..... (7,111,798) (6,901,413) (7,006,605) (6,796,220) (6,606,933) (6,353,048) (6,065,329) Other Assets................. 391,155 490,291 595,673 862,927 602,738 619,020 590,645 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 4,188,713 $ 4,062,304 $ 4,514,857 $ 4,461,521 $ 4,314,024 $ 4,598,813 $ 4,847,640 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... 7,175,106 7,344,518 7,261,097 7,422,113 7,569,042 7,704,803 7,828,473 Other Liabilities............ 413,274 268,266 721,159 670,288 328,918 347,378 306,206 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 7,588,380 7,612,784 7,982,256 8,092,401 7,897,960 8,052,181 8,134,679 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $(3,399,667) $(3,550,480) $(3,467,399) $(3,630,880) $(3,583,936) $(3,453,368) $(3,287,039) =========== =========== =========== =========== =========== =========== ===========
SYCAMORE CREEK ASSOCIATES, L.P. ------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue......................... $917,333 $861,680 $1,877,740 $1,863,228 $1,816,137 $1,819,632 $1,837,519 Other Income........................... 74,576 80,951 163,448 141,168 129,749 143,096 112,301 -------- -------- ---------- ---------- ---------- ---------- ---------- Casualty Gain.......................... $ 147,000 ---------- Total Revenue................. 991,909 942,631 2,188,188 2,004,396 1,945,886 1,962,728 1,949,820 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Expenses..................... 375,998 390,688 902,610 923,126 882,490 744,003 748,845 General & Administrative............... 32,167 25,174 57,254 60,560 55,031 44,641 65,534 Depreciation........................... 105,193 105,193 210,385 189,287 253,885 399,629 580,231 Interest Expense....................... 327,825 336,221 666,616 679,466 691,871 703,410 692,298 Property Taxes......................... 82,994 4,955 187,842 198,901 193,177 190,546 185,777 -------- -------- ---------- ---------- ---------- ---------- ---------- Loss on disposition of property........ 46,828 Total Expenses................ 924,177 862,231 2,024,707 2,051,340 2,076,454 2,129,057 2,272,685 -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (loss)...................... $ 67,732 $ 80,400 $ 16,481 $ (46,944) $ (130,568) $ (166,329) $ (322,865) ======== ======== ========== ========== ========== ========== ==========
S-73 3995 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $67,732 for the six months ended June 30, 1998, compared to $80,400 for the six months ended June 30, 1997. A decrease of $12,668, or 15.76%. The decrease is primarily the result of an increase in accrued expenses during the interim period, offset by an increase in rental revenue and a decrease in operating expenses. Revenues Rental and other property revenues from the partnership's property totaled $991,909 for the six months ended June 30, 1998, compared to $942,631 for the six months ended June 30, 1997. The increase of $49,278, or 5.23% is primarily the result of increased occupancy due to the reopening of several of the flood-damaged units coupled with increased rental rates. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $375,998 for the six months ended June 30, 1998, compared to $390,688 for the six months ended June 30, 1997, a decrease of $14,690 or 3.76%. Management expenses totaled $51,911 for the six months ended June 30, 1998, compared to $48,206 for the six months ended June 30, 1997, an increase of $3,705, or 7.69%. The increase resulted from increased rental revenue as management fees are calculated as a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $32,167 for the six months ended June 30, 1998 compared to $25,174 for the six months ended June 30, 1997, an increase of $6,993 or 27.78%. The increase is primarily due to an increase in training and travel expenses. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $327,825 for the six months ended June 30, 1998, compared to $336,221 for the six months ended June 30, 1997, a decrease of $8,396, or 2.50%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $163,481 for the year ended December 31, 1997, compared to a net loss of $46,944 for the year ended December 31, 1996. The increase in net income of $210,425 was primarily the result of a casualty gain of $147,000 incurred due to two fires in the clubhouse and a flood. There was also an increase in total revenue and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. S-74 3996 Revenues Rental and other property revenues from the partnership's property totaled $2,041,188 for the year ended December 31, 1997, compared to $2,004,396 for the year ended December 31, 1996, an increase of $36,792, or 1.84%. Expenses Operating expenses consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $902,610 for the year ended December 31, 1997, compared to $923,126 for the year ended December 31, 1996, a decrease of $20,516 or 2.22%. Management expenses totaled $101,578 for the year ended December 31, 1997, compared to $99,666 for the year ended December 31, 1996, an increase of $1,912, or 1.92%. General and Administrative Expenses General and administrative expenses totaled $57,254 for the year ended December 31, 1997 compared to $60,560 for the year ended December 31, 1996, a decrease of $3,306 or 5.46%. The decrease is primarily due to a decrease in contracted service fees. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $666,616 for the year ended December 31, 1997, compared to $679,466 for the year ended December 31, 1996, a decrease of $12,850, or 1.89%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $46,944 for the year ended December 31, 1996, compared to a net loss of $130,568 for the year ended December 31, 1995. The decrease in net loss of $83,624, or 64.05% was primarily the result of a decrease in depreciation expense due to 10 yr property becoming fully depreciated in 1995, coupled with an increase in total revenue, offset by an increase in operating expenses. These factors will be discussed further in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,004,396 for the year ended December 31, 1996, compared to $1,945,886 for the year ended December 31, 1995, an increase of $58,510, or 3.01%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $923,126 for the year ended December 31, 1996, compared to $882,490 for the year ended December 31, 1995, an increase of $40,636 or 4.60%. Management expenses totaled $99,666 for the year ended December 31, 1996, compared to $97,108 for the year ended December 31, 1995, an increase of $2,558, or 2.63%. General and Administrative Expenses General and administrative expenses totaled $60,560 for the year ended December 31, 1996 compared to $55,031 for the year ended December 31, 1995, an increase of $5,529 or 10.05%. The increase is primarily due to a general increase in various administrative expenses. S-75 3997 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $679,466 for the year ended December 31, 1996, compared to $691,871 for the year ended December 31, 1995, a decrease of $12,405, or 1.79%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $108,254 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 will not incur any liability to your partnership or any other partner for any mistakes or errors in judgment or for any act or omission believed by it in good faith to be within the scope of authority conferred upon it by your partnership's agreement of limited partnership. 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 owned by AIMCO. See "Conflicts of Interest". Your partnership will, to the extent permitted by law, indemnify and save harmless the general partner against and from any personal loss, liability (including attorneys' fees) or damage incurred by it as the result of any act or omission in its capacity as general partner unless such loss, liability or damage results from gross negligence or willful misconduct of the general partner. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions Your partnership has not paid distributions during the past five years. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). S-76 3998 BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 interest from your partnership as described in the following table:
YEAR MANAGEMENT FEES - ---- --------------- 1994........................................................ $54,502 1995........................................................ 47,090 1996........................................................ 71,297 1997........................................................ 72,266 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................... $ 98,775 1995........................................... $ 97,108 1996........................................... 99,666 1997........................................... 101,578 1998 (through June 30)......................... 51,911
If the offer had been made in such prior periods, there would not have been any material difference in the compensation and distributions 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fee............................................... $ Other....................................................... $
S-77 3999 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 Sycamore Creek Associates, L.P. at December 31, 1997, 1996, 1995 and December 31, 1994 and for the years then ended, appearing in this Prospectus Supplement have been audited by KPMG Peat Marwick LLP, independent certified public accountants, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-78 4000 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors Report................................. F-7 Balance Sheets as of December 31, 1997 and 1996............. F-8 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996............ F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-10 Notes to Financial Statements............................... F-11 Independent Auditors Report................................. F-15 Balance Sheets as of December 31, 1995 and 1994............. F-16 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1995 and 1994............ F-17 Statements of Cash Flows for the years ended December 31, 1995 and 1994............................................. F-18 Notes to Financial Statements............................... F-19
F-1 4001 SYCAMORE CREEK ASSOCIATES, LIMITED CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 108,254 Receivables and Deposits.................................... 83,487 Investments................................................. 0 Restricted Escrows.......................................... 190,110 Other Assets................................................ 117,558 Investment Property: Land...................................................... $ 950,000 Building and related personal property.................... 9,851,102 ----------- 10,801,102 Less: Accumulated depreciation............................ (7,111,798) 3,689,304 ----------- ----------- Total Assets...................................... $ 4,188,713 =========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ 167,388 Other Accrued Liabilities................................... 87,198 Property Taxes Payable...................................... 98,271 Tenant Security Deposits.................................... 60,417 Notes Payable............................................... 7,175,106 Partners' (Deficit)......................................... (3,399,667) ----------- Total Liabilities and Partners' Deficit........... $ 4,188,713 ===========
See the notes to the interim financial statements F-2 4002 SYCAMORE CREEK ASSOCIATES, LIMITED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $917,333 $861,680 Other Income.............................................. 74,576 80,951 -------- -------- Total Revenues:................................... 991,909 942,631 Expenses: Operating Expenses........................................ 375,998 390,688 General and Administrative Expenses....................... 32,167 25,174 Depreciation Expense...................................... 105,193 105,193 Interest Expense.......................................... 327,825 336,221 Property Tax Expense...................................... 82,994 4,955 -------- -------- Total Expenses.................................... 924,177 862,231 Net Income........................................ $ 67,732 $ 80,400 ======== ========
F-3 4003 SYCAMORE CREEK ASSOCIATES, LIMITED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------- 1998 1997 ----------- ----------- Operating Activities: Net Income (loss)......................................... $ 67,732 $ 80,400 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 145,838 145,838 Changes in accounts: Receivables and deposits and other assets............ 196,463 359,477 Accounts Payable and accrued expenses................ (307,885) (402,022) --------- --------- Net cash provided by (used in) operating activities...................................... 102,148 183,693 --------- --------- Investing Activities: Property improvements and replacements.................... (51,923) (89,149) Net (increase)/decrease in restricted escrows............. (3,518) 1,586 --------- --------- Net cash provided by (used in) investing activities...................................... (55,441) (87,563) --------- --------- Financing Activities: Payments on mortgage...................................... (115,063) (106,667) --------- --------- Net cash provided by (used in) financing activities...................................... (115,063) (106,667) --------- --------- Net increase (decrease) in cash and cash equivalents..................................... (68,356) (10,537) Cash and cash equivalents at beginning of year.............. 176,610 77,913 --------- --------- Cash and cash equivalents at end of period.................. $ 108,254 $ 67,376 ========= =========
F-4 4004 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Sycamore Creek Associates, Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 4005 SYCAMORE CREEK ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 4006 INDEPENDENT AUDITORS' REPORT General Partners Sycamore Creek Associates, Limited: We have audited the accompanying balance sheets of Sycamore Creek Associates, Limited as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sycamore Creek Associates, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina March 2, 1998 F-7 4007 SYCAMORE CREEK ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 176,610 $ 26,198 Receivables and deposits.................................... 231,374 174,574 Insurance proceeds receivable (Note E)...................... 50,000 294,000 Restricted escrows (Note B)................................. 186,592 309,134 Other Assets................................................ 127,707 136,934 Investment properties (Note C): Land...................................................... 950,000 950,000 Buildings and related personal property................... 9,799,179 9,366,901 ----------- ----------- 10,749,179 10,316,901 Less accumulated depreciation............................. (7,006,605) (6,796,220) ----------- ----------- 3,742,574 3,520,681 ----------- ----------- $ 4,514,857 $ 4,461,521 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable (Note E)................................. $ 403,729 $ 373,547 Tenant security deposit liabilities....................... 64,765 51,715 Accrued taxes............................................. 187,183 198,217 Other liabilities......................................... 65,482 46,809 Mortgage notes payable (Note C)........................... 7,261,097 7,422,113 Partners' deficit........................................... (3,467,399) (3,630,880) ----------- ----------- $ 4,514,857 $ 4,461,521 =========== ===========
See accompanying notes to financial statements. F-8 4008 SYCAMORE CREEK ASSOCIATE, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 1,877,740 $ 1,863,228 Other income.............................................. 163,448 141,168 Casualty gain (Note E).................................... 147,000 -- ----------- ----------- Total revenues.................................... 2,188,188 2,004,396 ----------- ----------- Expenses: Operating (Notes D and E)................................. 902,610 923,126 General and administrative (Note D)....................... 57,254 60,560 Depreciation.............................................. 210,385 189,287 Interest.................................................. 666,616 679,466 Property taxes............................................ 187,842 198,901 ----------- ----------- Total expenses.................................... 2,024,707 2,051,340 ----------- ----------- Net income (loss)........................................... 163,481 (46,944) Partners' deficit at beginning of year...................... (3,630,880) (3,583,936) ----------- ----------- Partners' deficit at end of year............................ $(3,467,399) $ 3,630,880 =========== ===========
See accompanying notes to financial statements. F-9 4009 SYCAMORE CREEK ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Cash flows from operating activities: Net income (loss)......................................... $ 163,481 $ (46,944) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 210,385 189,287 Amortization of discounts and loan costs............... 81,289 78,753 (Gain) loss on casualty events......................... (147,000) 8,500 Change in accounts: Receivables and deposits............................. (56,800) (14,373) Other assets......................................... (13,919) 1,336 Accounts payable..................................... 30,182 43,344 Tenant security deposit liabilities.................. 13,050 4,920 Accrued taxes........................................ (11,034) 5,683 Other liabilities.................................... 18,673 (15,077) --------- --------- Net cash provided by operating activities......... 288,307 255,429 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (432,278) (94,111) Insurance proceeds received, net of repairs expense....... 391,000 -- Net receipts from restricted escrows...................... 122,542 20,281 --------- --------- Net cash provided by (used in) investing activities...................................... 81,264 (73,830) --------- --------- Cash flows from financing activities: Payments on mortgaged notes payable....................... (219,159) (202,536) --------- --------- Net cash used in financing activities............. (219,159) (202,536) --------- --------- Net increase (decrease) in cash and cash equivalents..................................... 150,412 (20,937) Cash and cash equivalents at beginning of year.............. 26,198 47,135 --------- --------- Cash and cash equivalents at end of year.................... $ 176,610 $ 26,198 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 585,327 $ 601,951 ========= =========
See accompanying notes to financial statements. F-10 4010 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Sycamore Creek Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated September 28, 1984. The Partnership owns and operates a 295 unit apartment complex, Sycamore Creek Apartments, in Cincinnati, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include unamortized deferred loan costs of $113,787 and $136,934, respectively, which are amortized over the term of the related borrowing. Deferred loan costs are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-11 4011 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 AND 1996 Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the 1992 loan refinancing was placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in 1996 and the excess funds were returned for property operations. .............................................. $ -- $ 7,971 Reserve Escrow -- A portion of the proceeds of the 1992 loan refinancing was placed into a reserve escrow and maintained with the lender. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. ............................. 186,592 301,163 -------- -------- $186,592 $309,134 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $65,417, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $7,329,744 $7,548,903 Second mortgage note payable in interest only monthly installments of $1,624, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 256,342 256,342 ---------- ---------- Principal balance at year end............................... 7,586,086 7,805,245 Less unamortized discount................................... (324,989) (383,132) ---------- ---------- $7,261,097 $7,422,113 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $236,054 1999..................................................... 254,632 2000..................................................... 274,672 2001..................................................... 296,290 2002..................................................... 6,524,438 ---------- $7,586,086 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the F-12 4012 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997 AND 1996 excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- -------- ------- Management fee.................................. $101,578 $99,666 Partnership administration fee.................. $ 18,427 $19,692 Reimbursement for services of affiliates........ $ 30,526 $33,056 Construction oversight costs.................... $ 23,313 $18,549
NOTE E -- GAIN/LOSS ON CASUALTY EVENTS During 1997 the Partnership's operating property experienced a flood which destroyed part of the apartment complex. The Partnership will receive insurance proceeds totaling $397,000. Of this amount, $347,000 had been received as of December 31, 1997. The remaining $50,000 is recorded as a receivable at December 31, 1997. Costs to repair the affected units totaled approximately $531,000, of which $281,000 was capitalized as property improvements and replacements and $250,000 was expensed. This resulted in the Partnership recording a gain on casualty of $147,000 in the 1997 statement of operations. Included in accounts payable at December 31, 1997 is approximately $191,000 related to these repairs. During 1996 the clubhouse of the Partnership apartment complex was destroyed by fire. The Partnership received insurance proceeds totaling $294,000, which was recorded as a receivable at December 31, 1996, and recorded a loss on casualty of $8,500 that was included in operating expenses in the 1996 statement of operations. Costs to repair the clubhouse totaled $302,500 which was included in accounts payable at December 31, 1996. F-13 4013 SYCAMORE CREEK ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-14 4014 INDEPENDENT AUDITOR'S REPORT General Partners Sycamore Creek Associates, Limited: We have audited the accompanying balance sheets of Sycamore Creek Associates, Limited as of December 31, 1995 and 1994, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sycamore Creek Associates, Limited as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina February 24, 1996 F-15 4015 SYCAMORE CREEK ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1995 1994 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 47,135 $ 154,046 Restricted -- tenant security deposits.................... 48,294 41,502 Accounts receivable......................................... 2,879 3,548 Escrow for taxes............................................ 109,028 95,383 Restricted escrows (Note B)................................. 329,415 336,863 Other assets................................................ 161,416 183,226 Investment properties (Note C): Land...................................................... 950,000 950,000 Buildings and related personal property................... 9,272,790 9,187,293 ----------- ----------- 10,222,790 10,137,293 Less accumulated depreciation............................. (6,606,933) (6,353,048) ----------- ----------- 3,615,857 3,784,245 ----------- ----------- $ 4,314,024 $ 4,598,813 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 27,703 $ 30,792 Tenant security deposits.................................. 46,795 41,380 Accrued taxes............................................. 192,534 189,928 Other liabilities......................................... 61,886 85,278 Mortgage notes payable (Note C)........................... 7,569,042 7,704,803 Partners' Deficit........................................... (3,583,936) (3,453,368) ----------- ----------- $ 4,314,024 $ 4,598,813 =========== ===========
See accompanying notes to financial statements. F-16 4016 SYCAMORE CREEK ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1995 1994 ----------- ----------- Revenues: Rental income............................................. $ 1,816,137 $ 1,819,632 Other income.............................................. 129,749 143,096 ----------- ----------- Total revenues.................................... 1,945,886 1,962,728 ----------- ----------- Expenses: Operating................................................. 547,165 477,906 General and administrative (Note D)....................... 55,031 44,641 Property management fees (Note D)......................... 97,108 98,775 Maintenance............................................... 238,217 167,322 Depreciation.............................................. 253,885 399,629 Interest.................................................. 691,871 703,410 Property taxes............................................ 193,177 190,546 ----------- ----------- Total expenses.................................... 2,076,454 2,082,229 ----------- ----------- Loss on disposition of property............................. -- (46,828) ----------- ----------- Net loss.................................................... (130,568) (166,329) Partners' deficit at beginning of year...................... (3,453,368) (3,287,039) ----------- ----------- Partners' deficit at end of year............................ $(3,583,936) $(3,453,368) =========== ===========
See accompanying notes to financial statements. F-17 4017 SYCAMORE CREEK ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1995 1994 ---------- ---------- Cash flows from operating activities: Net loss.................................................. $(130,568) $(166,329) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 253,885 399,629 Amortization of discounts and loan costs............... 76,260 73,780 Loss on disposition of property........................ -- 46,828 Changes in accounts: Restricted cash...................................... (6,792) (1,892) Accounts receivable.................................. 669 18,735 Escrow for taxes..................................... (13,645) 3,427 Other assets......................................... (1,336) -- Accounts payable..................................... (3,089) 5,100 Tenant security deposit liabilities.................. 5,415 1,770 Accrued taxes........................................ 2,606 6,965 Other liabilities.................................... (23,392) 27,337 --------- --------- Net cash provided by operating activities......... 160,013 415,350 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (85,497) (97,128) Deposits to restricted escrows............................ (11,356) (74,916) Receipts from restricted escrows.......................... 18,804 1,270 --------- --------- Net cash used in investing activities............. (78,049) (170,774) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (188,875) (174,341) --------- --------- Net cash used in financing activities............. (188,875) (174,341) --------- --------- Net increase (decrease) in cash................... (106,911) 70,235 Cash and cash equivalents at beginning of year.............. 154,046 83,811 --------- --------- Cash and cash equivalents at end of year.................... $ 47,135 $ 154,046 ========= ========= Supplemental disclosure of cash flow information: Cash paid during year for interest........................ $ 615,611 $ 630,145 ========= =========
See accompanying notes to financial statements. F-18 4018 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Sycamore Creek Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated September 28, 1984. The Partnership owns and operates a 295 unit apartment complex, Sycamore Creek Apartments, in Cincinnati, Ohio. The Partnerships' Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1995 and 1994 include deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers cash and all highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Reclassifications Certain 1994 amounts have been reclassified to conform to the 1995 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. F-19 4019 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 AND 1994 NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1995 and 1994 consist of the following:
1995 1994 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in calendar year 1995 and the excess funds will be returned for property operations in 1996........................................ $ 29,344 $ 37,748 Reserve Escrow -- Established with a portion of the proceeds of the loan and maintained with the lender. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan...... 300,071 299,115 -------- -------- $329,415 $336,863 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1995 and 1994 consist of the following:
1995 1994 ---------- ---------- First mortgage note payable in monthly installments of $65,417, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $7,751,439 $7,940,314 Second mortgage note payable in interest only monthly installments of $1,624, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 256,342 256,342 ---------- ---------- Principal balance at year end............................... 8,007,781 8,196,656 Less unamortized discount................................... (438,739) (491,853) ---------- ---------- $7,569,042 $7,704,803 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1995 are as follows: 1996..................................................... $ 202,864 1997..................................................... 218,831 1998..................................................... 236,054 1999..................................................... 254,632 2000..................................................... 274,672 Thereafter............................................... 6,820,728 ---------- $8,007,781 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-20 4020 SYCAMORE CREEK ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1995 AND 1994 NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1995 1994 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee........................................... $97,108 $98,775 Partnership administration fee........................... $19,206 $19,755 Reimbursement for services of affiliates................. $27,844 $17,658 Construction fee......................................... $ -- $17,089
F-21 4021 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 4022 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 4023 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 September , 1998 A-3 4024 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF TEXAS RESIDENTIAL 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 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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 apartment properties to holding an interest in our large portfolio of properties. - 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 4025 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 Our 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 Texas Residential 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-58 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 4026
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership............. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 4027 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 Texas Residential 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 4028 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 4029 - 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 $100 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). 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 small number of apartment 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. 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 S-3 4030 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 4031 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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 4032 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 4033 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. 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 multi family 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. 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 5 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. 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 S-7 4034 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. 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 Code. The particular tax consequences to you of the exchange 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 small number of apartment 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. S-8 4035 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 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 S-9 4036 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 4037 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, 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. 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 S-11 4038 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 4039 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. 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." S-13 4040 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 4041 - 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 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. liquidation, redemption, voting and other rights and restrictions applicable to Class I Preferred Stock, see "Description of Class I Preferred Stock." 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 S-15 4042 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 4043 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 4044 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. Unlike the general partner of the AIMCO Operating Partnership, the general partner of your partnership is entitled to compensation for its services as 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 Unit, 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $22,500 (which may be increased pro rata to up to $36,000 if, in the discretion of the general partner, the offering of units is increased to $16,180,000) beginning in 1991, increasing annually at a rate of 6% beginning in 1992 and may receive reimbursement for expenses generated in that capacity from your partnership. The property manager received management fees of $137,205 in 1996, $152,785 in 1997 and $80,776 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 Your Partnership and its Property. Texas Residential Investors Limited Partnership is a Delaware limited partnership which was formed on May 21, 1991 for the purpose of owning and operating a small number of apartment properties located in Dallas, Texas and Houston, Texas, known as "Crossbridge Apartments," "Park at Deerbrook Apartments" and "Ryan's Pointe Apartments," respectively. In 1991, it completed a private placement of units that raised net proceeds of approximately $10,500,000. Crossbridge S-18 4045 Apartments consists of 160 apartment units, Park at Deerbrook Apartments consists of 280 apartment units and Ryan's Pointe Apartments consists of 100 apartment units. Your partnership has no employees. Property Management. Since November 1997, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2040, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $4,444,391, payable to Metropolitan Life, which bears interest at a rate of 7.61%. The mortgage debt is due in December 2002. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 4046 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 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 4047
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 4048 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 4049
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 4050 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 4051 SUMMARY FINANCIAL INFORMATION OF TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP The summary financial information of Texas Residential Investors Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Texas Residential 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 of Your Partnership" included herein. See "Index to Financial Statements." TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues...................... 1,625,633 0 3,173,970 2,813,082 2,865,809 2,838,748 2,812,474 Net Income/(Loss)................... 189,806 0 165,512 (116,678) 498,026 598,831 378,585 BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation...................... 11,806,091 0 11,964,690 12,250,545 12,438,432 12,514,579 12,651,544 Total Assets........................ 14,412,036 0 14,301,097 14,306,577 20,375,735 14,524,115 14,869,443 Mortgage Notes Payable, including Accrued Interest.................. 5,982,881 0 6,102,560 6,156,558 6,235,909 0 0 Partners' Capital/(Deficit)......... 7,674,990 0 7,485,184 7,547,368 13,886,268 14,025,454 14,267,841
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 YOUR 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 $1,000
S-25 4052 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. 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 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 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. S-26 4053 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. 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 therefore 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 apartment 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 S-27 4054 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 declines 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25, and the 1998 distributions of $0 with respect to your units, 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 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. 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 S-28 4055 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. S-29 4056 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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-30 4057 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 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 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 4058 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 4059 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 your rights to purchase your units for which you elect to receive cash to Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998 IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 4060 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. 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. S-34 4061 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." 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. 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. S-35 4062 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, (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 9:00 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 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, Denver, Colorado time. S-36 4063 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 4064 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. 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, which change, 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 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 S-38 4065 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 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 S-39 4066 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 4067 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. 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. 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-41 4068 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-42 4069 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 payment. 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 OP Units and any such S-43 4070 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-44 4071 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-45 4072 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-46 4073 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-47 4074 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-48 4075 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-49 4076 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 4077 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-51 4078 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 4079 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 4080 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 4081 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 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, a third party expert, 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 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions of $2.25 with respect to the Common OP Units and the 1997 distributions of $1,000 with respect to your units, distributions with respect to the Preferred OP Units and Common OP Units being offered are expected to be , immediately following the 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 S-55 4082 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................................ Not available Estimated Liquidation Proceeds............................ $
S-56 4083 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 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-1 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 "-- Fairness Opinion -- 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-57 4084 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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 September 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 S-58 4085 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 property was 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 S-59 4086 value of the partnership's property 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 property 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 property 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'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-1. 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 $9,000 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-60 4087 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Crossbridge Apartments, Park at Deerbrook Partnership owns interests (either directly or through Apartments and Ryan's Pointe Apartments, respectively. 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 2040. 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 an interest The purpose of the AIMCO Operating Partnership is to as a general partner in Texas Apartment Investors and conduct any business that may be lawfully conducted by to hold, own, maintain, sell, transfer, convey, a limited partnership organized pursuant to the exchange, otherwise dispose or deal in this partnership Delaware Revised Uniform Limited Partnership Act (as interest. Subject to restrictions contained in your amended from time to time, or any successor to such partnership's agreement of limited 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-61 4088 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 105 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 general partner may contributions as may be established by the general increase the total number of units sold to 168 units in partner in its sole discretion. The net capital its sole discretion. The capital contribution need not contribution need not be equal for all OP Unitholders. 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. In addition, the general partner may sell additional Subject to Delaware law, any additional partnership limited partnership interests on such terms and interests may be issued in one or more classes, or one conditions and the additional limited partners will or more series of any of such classes, with such have such rights and obligations as the general partner designations, preferences and relative, partici- determines; provided that the general partner must pating, optional or other special rights, powers and first offer such interests to the original limited duties as shall be determined by the general partner, partners. With the consent of the limited partners in its sole and absolute discretion without the holding a majority of the units, the general partner approval of any OP Unitholder, and set forth in a may also sell other equity interests in your written document thereafter attached to and made an partnership, other than units, which have such rights exhibit to the AIMCO Operating Partnership Agreement. as the general partner may determine.
Restrictions Upon Related Party Transactions Your partnership may pay the general partner or its The AIMCO Operating Partnership may lend or contribute affiliates fees for various goods and services, funds or other assets to its subsidiaries or other including, without limitation, insurance, insurance persons in which it has an equity investment, and such brokerage, mortgage brokerage in connection with persons may borrow funds from the AIMCO Operating financings and refinancings of your partnership's Partnership, on terms and conditions established in the property, management, rehabilitation, construction sole and absolute discretion of the general partner. To supervision, leasing and property brokerage at the then the extent consistent with the business purpose of the prevailing market rates in the vicinity of your AIMCO Operating Partnership and the permitted partnership's property. Although your partnership may activities of the general partner, the AIMCO Operating not make loans to the general partner or any of its Partnership may transfer assets to joint ventures, affiliates, the partners and their affiliates may lend limited liability companies, partnerships, money to your partnership. Such loans will be evidenced corporations, business trusts or other business by promissory notes which bear interests at a entities in which it is or thereby becomes a commercially reasonably rate not in excess of the participant upon such terms and subject to such lesser of the maximum rate permitted by law and 3% conditions consistent with the AIMCO Operating Part- above the "base rate" of The First National Bank of nership Agreement and applicable law as the general Boston and be subordinate to the obligation of your partner, in its sole and absolute discretion, believes partnership to pay unrelated creditors of your to be advisable. Except as expressly permitted by the partnership, but have priority over distributions to AIMCO Operating Partnership Agreement, neither the partners. 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 or establish a lien of credit on the restrictions on borrowings, and the general partner has general credit of your partnership or secure any such full power and authority to borrow money on behalf of debt by mortgage, pledge or other lien on any of the the AIMCO Operating Partnership. The AIMCO Operating assets of your partnership, and to issue evidences of Partnership has credit agreements that restrict, among indebtedness in furtherance of any or all of the other things, its ability to incur indebtedness. See purposes of your partnership and to enter into any "Risk Factors -- Risks of Significant Indebtedness" in agreement necessary or advisable in connection with the accompanying Prospectus. such borrowing.
S-62 4089 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 or its duly authorized with a statement of the purpose of such demand and at representative to inspect the register containing the such OP Unitholder's own expense, to obtain a current names and interests owned by the partners at any list of the name and last known business, residence or reasonable time during normal business hours at the mailing address of the general partner and each other office of your partnership. OP Unitholder.
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, your 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 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 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 who perform services on behalf of partner is not liable to the AIMCO Operating your partnership will not incur any liability, Partnership for losses sustained, liabilities incurred responsibility or accountability for damages or or benefits not derived as a result of errors in otherwise to your partnership or any limited partner judgment or mistakes of fact or law of any act or arising out of any acts performed or any omission by omission if the general partner acted in good faith. any of them if they believed in good faith that such The AIMCO Operating Partnership Agreement provides for act or omission was in the best interests of your indemnification of AIMCO, or any director or officer of partnership and such course of conduct did not AIMCO (in its capacity as the previous general partner constitute negligence or misconduct on the part of the of the AIMCO Operating Partnership), the general such person. In addition, your partnership will partner, any officer or director of general partner or indemnify and save harmless the general partner and its the AIMCO Operating Partnership and such other persons affiliates who perform services on behalf of your as the general partner may designate from and against partnership, to the full extent permitted by law, all losses, claims, damages, liabilities, joint or against any loss, damage, liability, cost or expenses several, expenses (including legal fees), fines, (including reasonable attorneys' fees) incurred by them settlements and other amounts incurred in connection in connection with your partnership provided that such with any actions relating to the operations of the loss, damage, liability, cost or expense was not the AIMCO Operating Partnership, as set forth in the AIMCO result of negligence or misconduct on the part of such Operating Partnership Agreement. The Delaware Limited persons. Such indemnity will be paid from, and only to Partnership Act provides that subject to the standards the extent of, partnership assets. However, the general and restrictions, if any, set forth in its partnership partner, its affiliates and any placing broker will be agreement, a limited partnership may, and shall have liable and not be indemnified from any loss, damage or the power to, indemnify and hold harmless any partner cost resulting from the violation of any Federal or or other
S-63 4090 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP state securities law in connection with the sale of person from and against any and all claims and demands units unless (i) there has been a successful whatsoever. It is the position of the Securities and adjudication on the merits of each count involving such Exchange Commission that indemnification of directors securities law violation, (ii) such claims have been and officers for liabilities arising under the dismissed with prejudice on the merits by a court of Securities Act is against public policy and is competent jurisdiction or (iii) a court of competent unenforceable pursuant to Section 14 of the Securities jurisdiction approves a settlement of such claim. In Act of 1933. such claim for indemnification for Federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect of 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 the vote of the limited partners affairs of the AIMCO Operating Partnership. The general holding more than 50% of the then outstanding units. partner may not be removed as general partner of the The general partner may withdraw voluntarily from your AIMCO Operating Partnership by the OP Unitholders with partnership only if another general partner remains or or without cause. Under the AIMCO Operating Partnership is elected. The general partner may admit any person as Agreement, the general partner may, in its sole an additional or substitute general partner if the discretion, prevent a transferee of an OP Unit from limited partners owning more than 50% of the then becoming a substituted limited partner pursuant to the outstanding units consent. A limited partner may not AIMCO Operating Partnership Agreement. The general transfer his interests 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- 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 upon approval by the limited partners owning in the AIMCO Operating Partnership Agreement, whereby more than 50% of the units and the general partner. No the general partner may, without the consent of the OP amendment may be adopted which affect the obligation of Unitholders, amend the AIMCO Operating Partnership the limited partners to make their required capital Agreement, amendments to the AIMCO Operating contribution or affect the timing or the amount of the Partnership Agreement require the consent of the fees paid by your partnership under your partner- holders of a majority of the outstanding Common OP ship's agreement of limited partnership. Any amendment Units, excluding AIMCO and certain other limited which adversely affects the rights of a specific exclusions (a "Majority in Interest"). Amendments to partner must be approved by such affected partner. the AIMCO Operating Partnership Agreement may be Amendments which increase the amount of or accelerate proposed by the general partner or by holders of a the date of payment for capital contributions required Majority in Interest. Following such proposal, the to be paid by limited partners, extend the termination general partner will submit any proposed amendment to date of your partnership, adversely affect the rights the OP Unitholders. The general partner will seek the of limited partners or amend the amendment provisions written consent of the OP Unitholders on the proposed required the consent of all limited partners. The amendment or will call a meeting to vote thereon. See general partner may amend your partnership's agreement "Description of OP Units -- Amendment of the AIMCO of limited partnership without the consent of the Operating Partnership Agreement" in the accompanying limited partners to comply with the applicable laws and Prospectus. correct any ambiguities.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives $22,500 (which may be increased pro rata to up capacity as general partner of the AIMCO Operating to $36,000 if, in the discretion of the general Partnership. In addition, the AIMCO Operating Part- partner, the offering of units is increased to nership is responsible for all expenses incurred $16,180,000) beginning in 1991, increasing annually at relating to the AIMCO Operating Partnership's ownership a rate of 6% beginning in 1992. Moreover, the general of its assets and the operation of the AIMCO Operating partner or certain affiliates may be entitled to Partnership and reimburses the general partner for such compensation for additional services rendered. expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
S-64 4091 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, contacts 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 its 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 has been fully paid, no ment in the AIMCO Operating Partnership. However, the limited partner, except as otherwise required by limitations on the liability of limited partners for applicable law, is required to make any further capital the obligations of a limited partnership have not been contributions or to make loans 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, 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 at all times has any transaction as to which it has a conflict of a fiduciary responsibility for the safekeeping and use interest. The AIMCO Operating Partnership Agreement of all partnership funds and assets. The general expressly authorizes the general partner to enter into, partner may assign some of its general partner on behalf of the AIMCO Operating Partnership, a right functions to affiliate; provided, however, that, of first opportunity arrangement and other conflict notwithstanding any such assignment, the general avoidance agreements with various affiliates of the partner will retain full responsibility to your AIMCO Operating Partnership and the general partner, on partnership for the satisfactory performance of all such terms as the general partner, in its sole and partnership general partner duties. Subject to its absolute discretion, believes are advisable. The AIMCO fiduciary duties, the general partner and its Operating Partnership Agreement expressly limits the affiliates may engage in or possess an interest in liability of the general partner by providing that the other business ventures of every nature and general partner, and its officers and directors will description, including without limitation, real estate not be liable or accountable in damages to the AIMCO business ventures, whether or not such other Operating Partnership, the limited partners or enterprises are in competition with any activities of assignees for errors in judgment or mistakes of fact or 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 4092 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, the general applicable law or in the AIMCO ship Agreement, the OP Unitholders partner, with the consent of the Operating Partnership Agreement, have voting rights only with limited partners may continue the the holders of the Preferred OP respect to certain limited matters business of your partnership after Units will have the same voting such as certain amendments and the sale of all or substantially or rights as holders of the Common OP termination of the AIMCO Operating the assets solely for the purpose Units. See "Description of OP Partnership Agreement and certain of receiving and collecting notes Units" in the accompanying transactions such as the received in consideration of your Prospectus. So long as any institution of bankruptcy partnership's assets, dissolve your Preferred OP Units are outstand- proceedings, an assignment for the partnership and admit an addition ing, in addition to any other vote benefit of creditors and certain or substitute general partner. The or consent of partners required by transfers by the general partner of consent of a limited partner will law or by the AIMCO Operating its interest in the AIMCO Operating be Partnership Agree- Part-
S-66 4093 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS deemed to be granted if it does not ment, the affirmative vote or nership or the admission of a refuse to consent in writing within consent of holders of at least 50% successor general partner. thirty days after it received of the outstanding Preferred OP notice requesting its consent. The Units will be necessary for Under the AIMCO Operating Partner- holders of a majority in interest effecting any amendment of any of ship Agreement, the general partner of the outstanding units may also the provisions of the Partnership has the power to effect the remove the general partner, elect a Unit Designation of the Preferred acquisition, sale, transfer, general partner, amend your OP Units that materially and exchange or other disposition of partnership's agreement of limited adversely affects the rights or any assets of the AIMCO Operating partnership, subject to certain preferences of the holders of the Partnership (including, but not exceptions, approve or disapprove Preferred OP Units. The creation or limited to, the exercise or grant the sale of all or substantially issuance of any class or series of of any conversion, option, all of the assets of your partnership units, including, privilege or subscription right or partnership and terminate your without limitation, any partner- any other right available in partnership before the expiration ship units that may have rights connection with any assets at any of its term. 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 Cash Flow (as $ per Preferred OP Unit; tribute quarterly all, or such defined in your partnership provided, however, that at any time portion as the general partner may agreement) are distributed at and from time to time on or after in its sole and absolute discretion reasonable intervals during the the fifth anniversary of the issue determine, of Available Cash (as fiscal year as determined by the date of the Preferred OP Units, the defined in the AIMCO Operating general partner, and in any event AIMCO Operating Partnership may Partnership Agreement) generated by are made within sixty days after adjust the annual distribution rate the AIMCO Operating Partnership the close of the fiscal year. The on the Preferred OP Units to the during such quarter to the general distributions payable to the lower of (i) % plus the annual partner, the special limited partners are not fixed in amount interest rate then applicable to partner and the holders of Common and depend upon the operating U.S. Treasury notes with a maturity OP Units on the record date 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. Your partner- preferred stock which ranks on a interests in the AIMCO Operating ship has made distributions in the parity with its Class H Cumu- Partnership on such record date. past and is projected to make Holders of any other Pre- distributions in 1998.
S-67 4094 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 who is not a Preferred OP Units and the OP Units. The AIMCO Operating Part- minor, except in limited Preferred OP Units are not listed nership Agreement restricts the circumstances, or an incompetent on any securities exchange. The transferability of the OP Units. and such person will become a Preferred OP Units are subject to Until the expiration of one year substitute limited partner if: (1) restrictions on transfer as set from the date on which an OP such transfer is of at least 1/2 forth in the AIMCO Operating Unitholder acquired OP Units, unit, except in limited circum- Partnership Agreement. subject to certain exceptions, such stances, (2) a transfer application OP Unitholder may not transfer all has been completed by the assignor Pursuant to the AIMCO Operating or any portion of its OP Units to and assignee, (3) the approval of Partnership Agreement, until the any transferee without the consent the general partner which may be expiration of one year from the of the general partner, which withheld in the sole and absolute date on which a holder of Preferred consent may be withheld in its sole discretion of the general partner OP Units acquired Preferred OP and absolute discretion. After the has been granted, (4) the transfer, Units, subject to certain expiration of one year, such OP when added to all other assignments exceptions, such holder of Unitholder has the right to within the preceding twelve months Preferred OP Units may not transfer transfer all or any portion of its ending on the date of the proposed all or any portion of its Pre- OP Units to any person, subject to assignment would not result in the ferred OP Units to any transferee the satisfaction of certain termination of your partnership without the consent of the general conditions specified in the AIMCO under the tax code, (5) if required partner, which consent may be Operating Partnership Agreement, by the general partner, the withheld in its sole and absolute including the general partner's assignor or the assignee pays all discretion. After the expiration of right of first refusal. See costs and fees associated with the one year, such holders of Preferred "Description of OP Units -- transaction, (6) the transfer OP Units has the right to transfer Transfers and Withdrawals" in the complies with all applicable law, all or any portion of its Preferred accompanying Prospectus. including Federal and state secu- OP Units to any person, subject to the satisfaction of
S-68 4095 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS rities laws, (7) the transfer of certain conditions specified in the After the first anniversary of the interest is not smaller than AIMCO Operating Partnership Agree- becoming a holder of Common OP $20,000 or would cause your ment, including the general Units, an OP Unitholder has the partnership to possess the partner's right of first refusal. right, subject to the terms and characteristic of "free conditions of the AIMCO Operating transferability of interests" under After a one-year holding period, a Partnership Agreement, to require the Treasury Regulations and (8) holder may redeem Preferred OP the AIMCO Operating Partnership to the assignor and assignee have com- Units and receive in exchange redeem all or a portion of the plied with such other conditions as therefor, at the AIMCO Operating Common OP Units held by such party set forth in your partnership's Partnership's option, (i) subject in exchange for a cash amount based agreement of limited partnership. 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 There are no redemption rights Liquidation Preference of the OP Units -- Redemption Rights" in associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 4096 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $22,500 (which may be increased pro rata to up to $36,000 if, in the discretion of the general partner, the offering of units is increased to $16,180,000) beginning in 1991, increasing annually at a rate of 6% beginning in 1992 from your partnership but may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $137,205 in 1996, $152,785 in 1997 and $80,776 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's 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'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 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-70 4097 YOUR PARTNERSHIP GENERAL Texas Residential Investors Limited Partnership is a Delaware limited partnership which raised net proceeds of approximately $10,500,000 in 1991 through a private offering. The promoter for the private offering of your partnership was Winthrop Securities Co., Inc. Insignia acquired your partnership in November 1997. AIMCO acquired Insignia in October, 1998. There are currently a total of 163 limited partners of your partnership and a total of 168 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages a small number of apartment properties described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 21, 1991 for the purpose of owning and operating a small number of apartment properties located in Dallas, Texas and Houston, Texas, known as "Crossbridge Apartments", "Park at Deerbrook Apartments" and "Ryan's Pointe Apartments," respectively. There are 160 apartment units in Crossbridge Apartments. Park at Deerbrook Apartments has 280 apartment units. In Ryan's Pointe Apartments, there are 100 apartment units. The average rent per apartment unit is $5,746. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1997, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $137,205, $152,785 and $80,776, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2040 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 4098 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding on "Ryan's Pointe Apartments" of $4,444,391 payable to Metropolitan Life which bears interest at a rate of 7.61% and is due December 2002. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 4099 Below is selected financial information for Texas Residential Investors Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP ---------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA Cash and Cash Equivalents........... 818,803 Not 675,795 388,637 6,620,669 892,063 975,157 Land & Building..................... 14,923,111 Available 14,842,560 14,639,835 14,373,866 14,048,403 13,813,472 Accumulated Depreciation............ (3,117,020) 0 (2,877,870) (2,389,290) (1,935,434) (1,533,824) (1,161,928) Other Assets........................ 1,787,142 0 1,660,612 1,667,395 1,316,634 1,117,473 1,242,742 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Assets............... 14,412,036 0 14,301,097 14,306,577 20,375,735 14,524,115 14,869,443 ========== ========== ========== ========== ========== ========== ========== Mortgage & Accrued Interest......... 5,982,881 6,102,560 6,156,558 6,235,909 0 0 Other Liabilities................... 754,165 713,353 602,651 253,558 498,661 601,602 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Liabilities.......... 6,737,046 0 6,815,913 6,759,209 6,489,467 498,661 601,602 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Partners Capital (Deficit).......... 7,674,990 0 7,485,184 7,547,368 13,886,268 14,025,454 14,267,841 ========== ========== ========== ========== ========== ========== ==========
TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP ------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- --------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- --------- --------- --------- --------- --------- STATEMENTS OF OPERATIONS Rental Revenue.......................... 1,551,477 3,017,269 2,661,069 2,701,538 2,609,592 2,444,750 Other Income............................ 74,156 156,701 152,013 164,271 229,156 367,724 ---------- ---------- --------- --------- --------- --------- --------- Total Revenue.................. 1,625,633 0 3,173,970 2,813,082 2,865,809 2,838,748 2,812,474 ---------- ---------- --------- --------- --------- --------- --------- Operating Expenses...................... 604,776 0 1,248,159 1,285,755 1,214,949 1,299,665 1,314,623 General & Administrative................ 182,112 392,025 291,590 343,180 203,187 220,871 Depreciation............................ 244,290 488,580 453,856 401,610 371,896 357,901 Interest Expense........................ 227,070 465,218 475,477 0 0 183,960 Property Taxes.......................... 177,579 414,476 423,082 408,044 365,169 356,534 ---------- ---------- --------- --------- --------- --------- --------- Total Expenses................. 1,435,827 0 3,008,458 2,929,760 2,367,783 2,239,917 2,433,889 ---------- ---------- --------- --------- --------- --------- --------- Net Income..................... 189,806 0 165,512 (116,678) 498,026 598,831 378,585 ========== ========== ========= ========= ========= ========= =========
S-73 4100 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Due to this partnership being a recent acquisition, very little discussion is available for variances. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Due to this partnership being a recent acquisition, no data is available for the six months ended June 30, 1997. Net Income Your partnership recognized net income of $189,806 for the six months ended June 30, 1998. Revenues Rental and other property revenues from the partnership's property totaled $1,625,633 for the six months ended June 30, 1998. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $604,776 for the six months ended June 30, 1998. Management expenses totaled $80,776 for the six months ended June 30, 1998. General and Administrative Expenses General and administrative expenses totaled $182,112 for the six months ended June 30, 1998. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $227,070 for the six months ended June 30, 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $165,512 for the year ended December 31, 1997, compared to a net loss of $116,678 for the year ended December 31, 1996. The increase in net income of $282,190, or 241.85% was primarily the result of increased rental revenue, coupled with decreased operating expenses, offset by an increase in general and administrative expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $3,173,970 for the year ended December 31, 1997, compared to $2,813,082 for the year ended December 31, 1996, an increase of $360,888, or 12.83%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled S-74 4101 $1,248,159 for the year ended December 31, 1997, compared to $1,285,755 for the year ended December 31, 1996, a decrease of $37,596 or 2.92%. Management expenses totaled $152,785 for the year ended December 31, 1997, compared to $137,205 for the year ended December 31, 1996, an increase of $15,580, or 11.36%. The increase resulted from increased rental revenue as management fees are calculated based on a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $392,025 for the year ended December 31, 1997 compared to $291,590 for the year ended December 31, 1996, an increase of $100,435 or 34.44%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $465,218 for the year ended December 31, 1997, compared to $475,477 for the year ended December 31, 1996, a decrease of $10,259, or 2.16%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $116,678 for the year ended December 31, 1996, compared to $498,026 for the year ended December 31, 1995. The decrease in net income of $614,704, or 123.43% was primarily the result of interest expense on a mortgage obtained in December of 1995, coupled with a decrease in total revenue and an increase in operating and general and administrative expenses. These factors are discussed further in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $2,813,082 for the year ended December 31, 1996, compared to $2,865,809 for the year ended December 31, 1995, a decrease of $52,727, or 1.84%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,285,755 for the year ended December 31, 1996,compared to $1,214,949 for the year ended December 31, 1995, an increase of $70,806 or 5.83%. Management expenses totaled $137,205 for the year ended December 31, 1996, compared to $138,499 for the year ended December 31, 1995, a decrease of $1,294, or 0.93%. General and Administrative Expenses General and administrative expenses totaled $291,590 for the year ended December 31, 1996 compared to $343,180 for the year ended December 31, 1995, a decrease of $51,590 or 15.03%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $475,477 for the year ended December 31, 1996, compared to $0 for the year ended December 31, 1995, an increase of $475,477, or 100%. The increase is due to the partnership obtaining two new mortgages on December 28, 1995. Liquidity and Capital Resources As of June 30, 1998, your partnership had $818,803 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on S-75 4102 outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 who perform services on behalf of your partnership will not incur any liability, responsibility or accountability for damages or otherwise to your partnership or any limited partner arising out of any acts performed or any omission by any of them if they believed in good faith that such act or omission was in the best interests of your partnership and such course of conduct did not constitute negligence or misconduct on the part of the 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 owned by AIMCO. See "Conflicts of Interest". Your partnership will indemnify and save harmless the general partner and its affiliates who perform services on behalf of your partnership, to the full extent permitted by law, against any loss, damage, liability, cost or expenses (including reasonable attorneys' fees) incurred by them in connection with your partnership provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct on the part of such persons. Such indemnity will be paid from, and only to the extent of, partnership assets. However, the general partner, its affiliates and any placing broker will be liable and not be indemnified from any loss, damage or cost resulting form the violation of any Federal or state securities law in connection with the sale of units unless (i) there has been a successful adjudication on the merits of each count involving such securities law violation, (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction or (iii) a court of competent jurisdiction approves a settlement of such claim. In such claim for indemnification for Federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect of the issue of indemnification for securities law violations. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. No partnership funds will be used to purchase any insurance that insures any party against any liability that is prohibited by your partnership's agreement of limited partnership. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $62,500.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 4,300 1995........................................................ 3,755 1996........................................................ 37,000 1997........................................................ 1,000 1998 (through June 30)...................................... 0
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the S-76 4103 general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994............................................ $42,877 1995............................................ 45,450 1996............................................ 48,177 1997............................................ 58,706 1998 (through June 30)..........................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995............................................ $138,499 1996............................................ 137,205 1997............................................ 152,785 1998 (through June 30).......................... 80,776
If the offer had been made in such prior periods, there would not have been any material difference in the compensation and distributions that would have been paid to the general partner of your partnership, or the company paid to the property manager or AIMCO and its affiliates. S-77 4104 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Texas Residential Investors Limited Partnership at December 31, 1997 and 1996 and for the years then ended, appearing in this Prospectus Supplement have been audited by Reznick Fedder & Silverman, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-78 4105 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statement of Operations for the six months ended June 30, 1998 (unaudited)................................. F-3 Condensed Statement of Cash Flows for the six months ended June 30, 1998 (unaudited)................................. F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Consolidated Balance Sheets as of December 31, 1997 and 1996...................................................... F-8 Consolidated Statements of Operations for the years ended December 31, 1997 and 1996................................ F-9 Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 1997 and 1996................ F-10 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996................................ F-11 Notes to Consolidated Financial Statements.................. F-12 Independent Auditors' Report................................ F-16 Consolidated Balance Sheets as of December 31, 1996 and 1995...................................................... F-17 Consolidated Statements of Operations for the years ended December 31, 1996 and 1995................................ F-18 Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 1996 and 1995................ F-19 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995................................ F-20 Notes to Consolidated Financial Statements.................. F-21
F-1 4106 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 818,803 Receivables and Deposits.................................... 747,149 Other Assets................................................ 1,039,993 Investment Property: Land...................................................... $ 1,694,963 Building and related personal property.................... 13,228,148 ----------- 14,923,111 Less: Accumulated depreciation............................ (3,117,020) 11,806,091 ----------- ----------- Total Assets:..................................... $14,412,036 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 46,522 Other Accrued Liabilities................................... 56,794 Property Taxes Payable...................................... 530,725 Tenant Security Deposits.................................... 91,896 Notes Payable............................................... 6,011,109 Partners' Capital........................................... 7,674,990 ----------- Total Liabilities and Partners' Capital........... $14,412,036 ===========
F-2 4107 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Revenues: Rental Income............................................. $1,551,477 Other Income.............................................. 74,156 ---------- Total Revenues:................................... 1,625,633 Expenses: Operating Expenses........................................ 604,776 General and Administrative Expenses....................... 182,112 Depreciation Expense...................................... 244,290 Interest Expense.......................................... 227,070 Property Tax Expense...................................... 177,579 ---------- Total Expenses:................................... 1,435,827 ---------- Net Income........................................ $ 189,806 ==========
F-3 4108 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDING JUNE 30, 1998 Operating Activities: Net Income................................................ $ 189,806 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 280,898 Changes in accounts: Receivables and deposits and other assets............ (157,452) Accounts Payable and accrued expenses................ (32,147) Net cash provided by (used in) operating activities........................................ 281,105 --------- Investing Activities: Property improvements and replacements.................... (85,691) --------- Net cash provided by (used in) investing activities........................................ (85,691) --------- Financing Activities: Payments on mortgage...................................... (52,406) --------- Net cash provided by (used in) financing activities........................................ (52,406) --------- Net increase (decrease) in cash and cash equivalents....................................... 143,008 Cash and cash equivalents at beginning of year.............. 675,795 --------- Cash and cash equivalents at end of period.................. $ 818,803 =========
F-4 4109 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Texas Residential Investors Limited Partnership and Subsidiary as of June 30, 1998 and for the six months ended June 30, 1998 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 4110 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 1997 AND 1996 F-6 4111 INDEPENDENT AUDITORS' REPORT To the Partners Texas Residential Investors Limited Partnership We have audited the accompanying consolidated balance sheets of Texas Residential Investors Limited Partnership and Subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in partners' capital and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Texas Residential Investors Limited Partnership and Subsidiary as of December 31, 1997 and 1996, and the results of their operations, and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDERS & SILVERMAN Bethesda, Maryland February 9, 1998 F-7 4112 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, ASSETS
1997 1996 ----------- ----------- Investment in Real Estate Land...................................................... $ 1,755,376 $ 1,755,376 Buildings and improvements, net of accumulated depreciation of $2,877,870 and $2,389,290.............. 10,209,314 10,495,169 ----------- ----------- 11,964,690 12,250,545 Other Assets Cash and cash equivalents................................. 589,142 182,335 Accounts receivable and other assets...................... 121,823 133,718 Repair escrow............................................. 48,200 48,200 Mortgage escrow deposits.................................. 458,540 380,214 Tenant security deposits -- funded........................ 86,653 206,302 Deferred costs, net of accumulated amortization of $330,683 and $459,234.................................. 1,032,049 1,105,263 ----------- ----------- $14,301,092 $14,306,577 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liability Applicable to Investment in Real Estate Mortgages payable......................................... $ 6,063,515 $ 6,156,558 ----------- ----------- Other Liabilities Accounts payable.......................................... 104,439 103,581 Accrued real estate taxes................................. 420,834 326,710 Accrued interest payable -- mortgage...................... 39,045 -- Accrued expense........................................... 101,870 88,223 Tenant security deposits.................................. 86,210 84,137 ----------- ----------- 752,398 602,651 ----------- ----------- Partners' Capital........................................... 7,485,184 7,547,368 ----------- ----------- $14,301,092 $14,306,577 =========== ===========
See notes to consolidated financial statements F-8 4113 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31,
1997 1996 ---------- ---------- Revenue Rental.................................................... $3,017,269 $2,661,069 Interest.................................................. 21,102 16,717 Other..................................................... 135,599 135,296 ---------- ---------- Total revenue..................................... 3,173,970 2,813,082 ---------- ---------- Operating expenses Leasing................................................... 75,370 68,072 General and administrative................................ 392,025 291,590 Management fees........................................... 195,341 185,382 Utilities................................................. 276,841 272,717 Repairs and maintenance................................... 307,337 381,099 Janitorial................................................ 36,659 31,098 Painting and decorating................................... 66,042 75,120 Insurance................................................. 105,142 123,810 Taxes..................................................... 414,476 423,082 ---------- ---------- Total operating expenses.......................... 1,869,233 1,851,970 ---------- ---------- Other expenses Interest expense-mortgage................................. 465,218 475,477 Depreciation.............................................. 488,580 453,856 Amortization.............................................. 73,214 75,469 Partnership expenses...................................... 112,213 72,988 ---------- ---------- Total other expenses.............................. 1,139,225 1,077,790 ---------- ---------- Total expenses.................................... 3,008,458 2,929,760 ---------- ---------- Net income (loss)................................. $ 165,512 $ (116,678) ========== ========== Net income (loss) allocated to general partner.............. $ 1,655 $ (1,167) ========== ========== Net income (loss) allocated to limited partners............. $ 163,857 $ (115,511) ========== ==========
See notes to consolidated financial statements F-9 4114 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1997 AND 1996
GENERAL LIMITED PARTNER PARTNERS TOTAL --------- ----------- ----------- Balance, December 31, 1995............................. $(464,083) $14,350,351 $13,886,268 Net loss............................................. (1,167) (115,511) (116,678) Distributions to partners............................ (6,222) (6,216,000) (6,222,222) --------- ----------- ----------- Balance, December 31, 1996............................. (471,472) 8,018,840 7,547,368 Net income........................................... 1,655 163,857 165,512 Distributions to partners............................ (58,324) (169,372) (227,696) --------- ----------- ----------- Balance, December 31, 1997............................. $(528,141) $ 8,013,325 $ 7,485,184 ========= =========== ===========
See notes to consolidated financial statements F-10 4115 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1997 1996 --------- ----------- Cash flows from operating activities Net income (loss)......................................... $ 165,512 $ (116,678) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation........................................... 488,580 453,856 Amortization........................................... 73,214 75,469 Decrease (increase) in accounts receivable and other assets................................................ 11,895 (41,400) Increase in mortgage escrow deposits................... (78,326) (322,470) Increase (decrease) in accounts payable................ 858 (39,586) Increase in accrued real estate taxes.................. 94,124 262,238 Increase (decrease) in net security deposits........... 121,722 (115,479) Increase in accrued expenses........................... 13,647 51,194 Increase in accrued interest payable -- mortgage....... 39,045 -- --------- ----------- Net cash provided by operating activities......... 930,271 207,144 --------- ----------- Cash flows from investing activities Investment in real estate................................. (202,725) (265,969) --------- ----------- Net cash used in investing activities............. (202,725) (265,969) --------- ----------- Cash flows from financing activities Mortgages principal payments.............................. (93,043) (79,351) Distributions to partners................................. (227,696) (6,222,222) --------- ----------- Net cash used in financing activities............. (320,739) (6,301,573) --------- ----------- Net increase (decrease) in cash and cash equivalents..................................... 406,807 (6,360,398) Cash and cash equivalents, beginning........................ 182,335 6,542,733 --------- ----------- Cash and cash equivalents, ending........................... $ 589,142 $ 182,335 ========= =========== Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 426,173 $ 475,477 ========= ===========
See notes to consolidated financial statements F-11 4116 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Texas Residential Investors Limited Partnership (the "Partnership" or the "Investor Partnership"), a limited partnership, was formed on March 21, 1991 under the laws of the State of Delaware for the purpose of holding a general partnership interest in Texas Apartment Investors General Partnership (the "Operating Partnership"). The Operating Partnership has acquired three properties consisting of an aggregate of 540 market-rate rental apartment units, located in the Houston area and in Dallas, Texas. The Investor Partnership will terminate on December 31, 2040, or earlier upon the occurrence of certain events specified in the Investor Partnership Agreement. The general partner of the Investor Partnership is Winthrop Properties Limited Partnership ("WPLP"), which is a Delaware limited partnership. The initial limited partner of the Investor Partnership was AC Realty Co., Inc., which withdrew from the Partnership upon the first admission of investors. The Investor Partnership sold 168 limited partnership units at $100,000 per unit. Principles of Consolidation and Subsidiary The consolidated financial statements include all the accounts of Texas Residential Investors Limited Partnership and its majority-owned subsidiary, Texas Apartment Investors General Partnership. All intercompany balances have been eliminated in consolidation. Pursuant to the Operating Partnership's general partnership agreement, the Investor Partnership has significant control over major decisions, such as the sale or refinancing of the Operating Partnership. Accordingly, the accompanying consolidated financial statements have been consolidated and have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Deferred Costs Deferred costs which consist of loan fees, are capitalized and amortized using the straight-line method over the term of the related agreement. Investment in Real Estate Investment in real estate is carried at cost. The Operating Partnership provides for depreciation of buildings and improvements on the straight-line method over their estimated useful life for financial and reporting purposes. For income tax purposes, accelerated methods and lives are used. Rental Income Rental income is recognized as rents become due. Rental payments received in advance are deferred until earned. All leases between the Operating Partnership and tenants of the properties are operating leases. F-12 4117 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income Taxes No provision is made for federal, state or local income taxes in the consolidated financial statements of the Partnership. Partners are required to report on their tax returns their allocable shares of income, gains, losses, deductions and credits of the Partnership. Cash Equivalents For purposes of the consolidated statements of cash flows, the Investor and Operating Partnerships consider all highly liquid investments with maturities of less than three months to be cash equivalents. NOTE B -- MORTGAGES PAYABLE On December 28, 1995, the Operating Partnership obtained two mortgage loans by the same lender in the aggregate amount of $6,235,909, which are collateralized by deeds of trust on the rental properties. The notes bear interest at a rate of 7.61%. Principal and interest are payable by the Operating Partnership in monthly installments of $46,530. A balloon payment of approximately $5,656,731 and the accrued interest is payable in full on December 1, 2002. Under agreements with the mortgage lender, the Operating Partnership is required to make monthly escrow deposits for taxes and insurance. The Operating Partnership was required to make an initial deposit into a repair escrow for repairs to the project upon obtaining the two mortgages in 1995. The liability of the Operating Partnership under the mortgage notes is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgages payable over each of the next five years are as follows:
DECEMBER 31, ------------ 1998................................................. $ 90,418 1999................................................. 97,554 2000................................................. 105,253 2001................................................. 113,559 2002................................................. 5,656,731
NOTE C -- ACQUISITION OF THE PROPERTIES The Partnership owns a 99.9% general partnership interest in the Operating Partnership which was formed to acquire, renovate, own and operate certain residential apartments located in the Houston and Dallas, Texas metropolitan areas. In 1990, the Operating Partnership acquired three separate residential apartment complexes for an aggregate purchase price of $11,935,000 beginning on May 1, 1990, with the purchase of Crossbridge Apartments for $2,660,000. On October 16, 1990, the Park at Deerbrook and Ryan's Pointe Apartments were purchased for $2,350,000 and $6,925,000, respectively. NOTE D -- RELATED PARTY TRANSACTIONS The Investor Partnership and Operating Partnership have incurred charges and commitments to affiliates of its general partner. Related party transactions include the following: (a)The Operating Partnership paid to an affiliate of the general partner, Winthrop Management, an annual property management fee equal to 5% of gross operating revenues for the properties through F-13 4118 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) October 27, 1997. Fees of $126,876 and $137,205 were charged to operations for the years ended December 31, 1997 and 1996, respectively. (b)On October 28, 1997, the Partnership terminated Winthrop Management as the managing agent, and appointed Insignia Residential Group, L.P. ("Insignia") as the new management agent (see note G to the financial statements). The management agreement provides for a management fee equal to 5% of gross operating revenues for the properties. Fees of $25,909 were charged to operations for the year ended December 31, 1997. (c)The Investor Partnership paid an annual administration and investor service fee to an affiliate of Winthrop which were to increase 6% per year. Fees of $42,556 and $48,177 were charged to operations for the years ended December 31, 1997 and 1996, respectively. (d)Effective October 28, 1997, the Investor Partnership charged operations for the annual administration and investor service fee and costs reimbursements payable to an affiliate of Insignia. Fees and reimbursements of $16,150 are included in partnership expense for the year ended December 31, 1997. At December 31, 1997, $16,150 remains payable. (e)Included in accounts payable at December 31, 1996 was $62,360 due to an affiliate of the general partner in connection with obtaining the Operating Partnership's mortgage loans. NOTE E -- ALLOCATION OF INCOME, LOSSES AND CASH FLOW In accordance with the Investor Partnership Agreement, losses and cash flow are allocated 99% to the limited partners and 1% to the general partner and income is allocated to the partners in proportion to cash distributed to the partners. If there is no such cash available for distribution, income is allocated 95% to the limited partners and 5% to the general partner. NOTE F -- CONCENTRATION OF CREDIT RISK The Operating Partnership maintains its cash balances in two banks. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000 by each bank. As of December 31, 1997, the uninsured portion of the cash balances at both banks totaled $364,930. NOTE G -- OTHER INFORMATION On October 28, 1997, Insignia Financial Group acquired 100% of the Class B stock of First Winthrop Corporation, an affiliate of the general partner (WPLP). F-14 4119 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 [WINTHROP LOGO] F-15 4120 INDEPENDENT AUDITORS' REPORT To the Partners Texas Residential Investors Limited Partnership We have audited the accompanying consolidated balance sheets of Texas Residential Investors Limited Partnership and Subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of operations, partners' capital and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Texas Residential Investors Limited Partnership and Subsidiary as of December 31, 1996 and 1995, and the results of their operations, and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDERS & SILVERMAN Bethesda, Maryland February 21, 1997 F-16 4121 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, ASSETS
1996 1995 ----------- ----------- Investment in Real Estate Land...................................................... $ 1,755,376 $ 1,755,376 Buildings and improvements, net of accumulated depreciation of $2,389,290 and $1,935,434.............. 10,495,169 10,683,056 ----------- ----------- 12,250,545 12,438,432 Other Assets Cash and cash equivalents................................. 182,335 6,542,733 Accounts receivable and other assets...................... 133,718 92,318 Repair escrow............................................. 48,200 48,200 Mortgage escrow deposits.................................. 380,214 57,744 Tenant security deposits -- funded........................ 206,302 77,936 Deferred costs, net of accumulated amortization of $459,234 and $383,765........................................... 1,105,263 1,118,372 ----------- ----------- $14,306,577 $20,375,735 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liability Applicable to Investment in Real Estate Mortgages payable......................................... $ 6,156,558 $ 6,235,909 ----------- ----------- Other Liabilities Accounts payable.......................................... 103,581 80,807 Accrued real estate taxes................................. 326,710 64,472 Accrued expense and other liabilities..................... 88,223 37,029 Tenant security deposits.................................. 84,137 71,250 ----------- ----------- 602,651 253,558 ----------- ----------- Partners' Capital........................................... 7,547,368 13,886,268 ----------- ----------- $14,306,577 $20,375,735 =========== ===========
See notes to consolidated financial statements F-17 4122 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31,
1996 1995 ---------- ---------- Revenues Rental.................................................... $2,661,069 $2,701,538 Interest.................................................. 16,717 42,613 Other..................................................... 135,296 121,658 ---------- ---------- Total revenues.................................... 2,813,082 2,865,809 ---------- ---------- Operating expenses Leasing................................................... 68,072 43,003 General and administrative................................ 291,590 343,180 Management fees........................................... 185,382 183,949 Utilities................................................. 272,717 274,895 Repairs and maintenance................................... 381,099 436,893 Janitorial................................................ 31,098 46,370 Painting and decorating................................... 75,120 58,806 Insurance................................................. 123,810 92,025 Taxes..................................................... 423,082 408,044 ---------- ---------- Total operating expenses.......................... 1,851,970 1,887,165 ---------- ---------- Other expenses Interest expense -- mortgage.............................. 475,477 -- Depreciation.............................................. 453,856 401,610 Amortization.............................................. 75,469 45,508 Partnership expenses...................................... 72,988 33,500 ---------- ---------- Total other expenses.............................. 1,077,790 480,618 ---------- ---------- Total expenses.................................... 2,929,760 2,367,783 ---------- ---------- Net income (loss)................................. $ (116,678) $ 498,026 ========== ========== Net income (loss) allocated to general partner.............. $ (1,167) $ 4,980 ========== ========== Net income (loss) allocated to limited partners............. $ (115,511) $ 493,046 ========== ==========
See notes to consolidated financial statements F-18 4123 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL LIMITED PARTNER PARTNERS TOTAL --------- ----------- ----------- Balance, December 31, 1994............................. $(462,691) $14,488,145 $14,025,454 Net income........................................... 4,980 493,046 498,026 Distributions........................................ (6,372) (630,840) (637,212) --------- ----------- ----------- Balance, December 31, 1995............................. (464,083) 14,350,351 13,886,268 Net loss............................................. (1,167) (115,511) (116,678) Distributions........................................ (6,222) (6,216,000) (6,222,222) --------- ----------- ----------- Balance, December 31, 1996............................. $(471,472) $ 8,018,840 $ 7,547,368 ========= =========== ===========
See notes to consolidated financial statements F-19 4124 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1996 1995 ----------- ---------- Cash flows from operating activities Net income (loss)......................................... $ (116,678) $ 498,026 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation........................................... 453,856 401,610 Amortization........................................... 75,469 45,508 Increase in accounts receivable and other assets....... (41,400) (53,573) Increase in mortgage escrow deposits................... (322,470) (57,744) (Decrease) increase in accounts payable................ (39,586) 38,251 Increase (decrease) in accrued real estate taxes....... 262,238 (269,311) Decrease in net security deposits...................... (115,479) (17,300) Increase (decrease) in accrued expenses and other liabilities........................................... 51,194 (2) ----------- ---------- Net cash provided by operating activities......... 207,144 585,465 ----------- ---------- Cash flows from investing activities Investment in real estates................................ (265,969) (325,463) Increase in repair escrow................................. -- (48,200) ----------- ---------- Net cash used in investing activities............. (265,969) (373,663) ----------- ---------- Cash flows from financing activities Mortgages principal payments.............................. (79,351) -- Proceeds from mortgage loans.............................. -- 6,235,909 Distributions............................................. (6,222,222) (637,212) Increase in deferred costs................................ -- (159,829) ----------- ---------- Net cash provided by (used in) financing activities...................................... (6,301,573) 5,438,868 ----------- ---------- Net increase (decrease) in cash and cash equivalents..................................... (6,360,398) 5,650,670 Cash and cash equivalents, beginning........................ 6,542,733 892,063 ----------- ---------- Cash and cash equivalents, ending........................... $ 182,335 $6,542,733 =========== ========== Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 475,477 $ -- =========== ==========
See notes to consolidated financial statements F-20 4125 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Texas Residential Investors Limited Partnership (the "Partnership" or the "Investor Partnership"), a limited partnership, was formed on March 21, 1991 under the laws of the State of Delaware for the purpose of holding a general partnership interest in Texas Apartment Investors General Partnership (the "Operating Partnership"). The Operating Partnership has acquired three properties consisting of an aggregate of 540 market-rate rental apartment units, located in the Houston area and in Dallas, Texas. The Investor Partnership will terminate on December 31, 2040, or earlier upon the occurrence of certain events specified in the Investor Partnership Agreement. The general partner of the Investor Partnership is Winthrop Properties Limited Partnership ("WPLP"), which is a Delaware limited partnership. The initial limited partner of the Investor Partnership was AC Realty Co., Inc., which withdrew from the Partnership upon the first admission of investors. The Investor Partnership sold 168 limited partnership units at $100,000 per unit. Principles of Consolidation and Subsidiary The consolidated financial statements include all the accounts of Texas Residential Investors Limited Partnership and its majority-owned subsidiary, Texas Apartment Investors General Partnership. All intercompany balances have been eliminated in consolidation. Pursuant to the Operating Partnership's General Partnership agreement, the Investor Partnership has significant control over major decisions, such as the sale or refinancing of the Operating Partnership. Accordingly, the accompanying consolidated financial statements have been consolidated and have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Deferred Costs Deferred costs which consist of loan fees, are capitalized and amortized using the straight-line method over the term of the related agreement. Investment in Real Estate Investment in real estate is carried at cost. The Operating Partnership provides for depreciation of buildings and improvements on the straight-line method over their estimated useful life for financial and reporting purposes. For income tax purposes, accelerated methods and lives are used. Rental Income Rental income is recognized as rents become due. Rental payments received in advance are deferred until earned. All leases between the Operating Partnership and tenants of the properties are operating leases. F-21 4126 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income Taxes No provision is made for federal, state or local income taxes in the consolidated financial statements of the Partnership. Partners are required to report on their tax returns their allocable shares of income, gains, losses, deductions and credits of the Partnership. Cash Equivalents For purposes of the consolidated statements of cash flows, the Investor and Operating Partnerships consider all highly liquid investments with maturities of less than three months to be cash equivalents. The carrying amount of $171,943 approximates fair value because of the short maturity of this instrument. NOTE B -- MORTGAGES PAYABLE On December 28, 1995, the Operating Partnership obtained two mortgage loans by the same lender in the aggregate amount of $6,235,909 and are collateralized by deeds of trust on the rental properties. The notes bear interest at a rate of 7.62%. Principal and interest are payable by the Operating Partnership in monthly installments of $45,921. A balloon payment of approximately [MISSING COPY] Under agreements with the mortgage lender, the Operating Partnership is required to make monthly escrow deposits for taxes and insurance. The Operating Partnership was required to make an initial deposit into a repair escrow for repairs to the project upon obtaining the two mortgages in 1995. The liability of the Operating Partnership under the mortgage notes is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgages payable over each of the next five years are as follows:
DECEMBER 31, ------------ 1997................................................... $ 83,804 1998................................................... 90,418 1999................................................... 97,554 2000................................................... 105,253 2001................................................... 113,559
NOTE C -- ACQUISITION OF THE PROPERTIES The Partnership owns a 99.9% general partnership interest in the Operating Partnership which was formed to acquire, renovate, own and operate certain residential apartments located in the Houston and Dallas, Texas metropolitan areas. In 1990, the Operating Partnership acquired three separate residential apartment complexes for an aggregate purchase price of $11,935,000 beginning on May 1, 1990, with the purchase of Crossbridge Apartments for $2,660,000. On October 16, 1990, the Park at Deerbrook and Ryan's Pointe Apartments were purchased for $2,350,000 and $6,925,000, respectively. NOTE D -- RELATED PARTY TRANSACTIONS The Investor Partnership and Operating Partnership have incurred charges and commitments to affiliates of its general partner. Related party transactions include the following: (a) The Operating Partnership pays to an affiliate, Winthrop Management, an annual property management fee equal to 5% of gross operating revenues for the properties. Fees of $137,205 and $138,499 were charged to operations for the years ended December 31, 1996 and 1995, respectively. F-22 4127 TEXAS RESIDENTIAL INVESTORS LIMITED PARTNERSHIP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (b) The Investor Partnership pays an annual administration and investor service fee to an affiliate which increases 6% per year. Fees of $48,177 and $45,450 were charged to operations for the years ended December 31, 1996 and 1995, respectively. (c) Included in accounts payable at December 31, 1996 is $62,360 due to an affiliate of the general partner in connection with obtaining the operating partnership's mortgage loans. NOTE E -- ALLOCATION OF INCOME, LOSSES AND CASH FLOW In accordance with the Investor Partnership Agreement, losses and cash flow are allocated 99% to the limited partners and 1% to the general partner and income is allocated to the partners in proportion to cash distributed to the partners. If there is no such cash available for distribution, income is allocated 95% to the limited partners and 5% to the general partner. F-23 4128 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 4129 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 4130 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 September , 1998 A-3 4131 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF THURBER MANOR 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 THE 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 4132 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 Thurber Manor Associates, 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 4133
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 4134 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 Thurber Manor Associates, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 4135 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 4136 - 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 $0.00 per unit for the six months ended June 30, 1998 due to capital improvements to your partnership's property funded from cash flow. 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). 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 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. 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 S-3 4137 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 4138 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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 4139 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 4140 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. 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 Multihousing 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. 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 5 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. 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 S-7 4141 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 4142 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 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 S-9 4143 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 4144 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, 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. 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 S-11 4145 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 51% of the units of your partnership. In the absence of such consent, your only 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 S-12 4146 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. 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." S-13 4147 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 4148 - 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 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 4149 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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................................. ===========
- --------------- (1) As of June 30, 1998 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 4150 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 4151 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 is not subject to such limitations. 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 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 generated in that capacity. The property manager received management fees of $37,726 in 1996, $39,386 in 1997 and $20,480 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 Your Partnership and its Property. Thurber Manor Associates, L.P. is a Delaware limited partnership which was formed on July 31, 1984 for the purpose of owning and operating a single apartment property located in Columbus, Ohio, known as "Thurber Manor Apartments." In 1984, it completed a private placement of units that raised net proceeds of approximately $1,875,000. Thurber Manor Apartments consists of 115 apartment units. Your partnership has no employees. S-18 4152 Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2008, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,341,104, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $83,190, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 4153 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 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 4154
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 4155 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 4156
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 4157 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 4158 SUMMARY FINANCIAL INFORMATION OF THURBER MANOR ASSOCIATES, L.P. The summary financial information of Thurber Manor Associates, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Thurber Manor Associates, L.P. 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 of Your Partnership" included herein. See "Index to Financial Statements." THURBER MANOR ASSOCIATES, L.P.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------ ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues.......... $ 409,939 $ 386,469 $ 795,109 $ 761,859 $ 727,990 $ 696,977 $ 682,707 Net Income/(Loss)............. 59,996 83,983 67,064 40,456 52,035 (19,820) (59,165) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation.... 1,067,157 1,087,792 1,078,012 1,084,236 1,044,589 983,025 1,037,970 Total Assets............ 1,429,600 1,432,022 1,437,774 1,466,897 1,435,394 1,444,167 1,530,093 Mortgage Notes Payable, including Accrued Interest.................... 2,319,089 2,383,948 2,356,670 2,408,823 2,456,618 2,500,418 2,548,880 Partners' Capital/(Deficit)... (967,553) (1,010,630) (1,027,549) (1,094,613) (1,120,069) (1,152,104) (1,112,834)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 4159 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. 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 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 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. S-26 4160 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 Code. 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 therefore 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 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. 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 S-27 4161 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25, and the 1998 distributions of $0.00 with respect to your units for the six months ended June 30, 1998 were $0.00. Therefore, due to capital improvement to your partnership's property funded from cash flow, 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 S-28 4162 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 4163 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 51% of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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. S-30 4164 - 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 4165 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 4166 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 4167 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. 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. S-34 4168 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." 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. 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. S-35 4169 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, (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 9:00 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 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, Denver, Colorado time. S-36 4170 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 4171 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. 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 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 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 S-38 4172 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 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 S-39 4173 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 4174 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. 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. 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-41 4175 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-42 4176 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 payment. 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 OP Units and any such S-43 4177 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-44 4178 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-45 4179 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-46 4180 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-47 4181 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-48 4182 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-49 4183 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 4184 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-51 4185 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 4186 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 4187 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 4188 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 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, a third party expert, 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 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions of $2.25 with respect to the Common OP Units and the 1998 distributions of $0.00 with respect to your units due to capital improvements to your partnership's property funded from cash flow, distributions with respect to the Preferred OP Units and Common OP Units being offered are expected to be , immediately following the 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 S-55 4189 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................................ Not available Estimated Liquidation Proceeds............................ $
S-56 4190 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. 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-1 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-57 4191 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 4192 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 September 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 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 property was 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, S-59 4193 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 4194 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Thurber Manor Apartments. 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 (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 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 acquire, develop, The purpose of the AIMCO Operating Partnership is to operate, lease, manage and hold for investment and the conduct any business that may be lawfully conducted by production of income your partnership's property. a limited partnership organized pursuant to the Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as agreement of limited partnership, your partnership may amended from time to time, or any successor to such perform all act necessary or appropriate in connection statute) (the "Delaware Limited Partnership Act"), therewith and reasonably related thereto, including provided that such business is to be conducted in a acquiring additional real or personal property, manner that permits AIMCO to be qualified as a REIT, 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-61 4195 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 up to 35 additional Partnership for any partnership purpose from time to limited partners by selling not more than 18.75 units time to the limited partners and to other persons, and for 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. Upon admission partner in its sole discretion. The net capital of such limited partners, an amendment to the contribution need not be equal for all OP Unitholders. certificate of your partnership must be executed and No action or consent by the OP Unitholders is required acknowledged by the general partner, the original in connection with the admission of any additional OP limited partner and by the general partner as Unitholder. See "Description of OP Units -- Management attorney-in-fact for the additional limited partners. 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 is authorized in funds or other assets to its subsidiaries or other connection with the management of your partnership to persons in which it has an equity investment, and such acquire goods from, or utilize the services of, firms persons may borrow funds from the AIMCO Operating and persons affiliated with the general partner in per- Partnership, on terms and conditions established in the forming its duties and responsibilities under your sole and absolute discretion of the general partner. To partnership's agreement of limited partnership; the extent consistent with the business purpose of the provided that terms and conditions of such dealings are AIMCO Operating Partnership and the permitted as favorable as could be reasonably obtained from third activities of the general partner, the AIMCO Operating parties offering similar goods and services of similar Partnership may transfer assets to joint ventures, quality and reliability. In the event the general limited liability companies, partnerships, partner determines that funds are reasonably necessary corporations, business trusts or other business for acquiring or maintaining and protecting the entities in which it is or thereby becomes a property of your partnership or conducting its participant upon such terms and subject to such business, the general partner is authorized to borrow conditions consistent with the AIMCO Operating Part- funds on behalf of your partnership on commercially nership Agreement and applicable law as the general reasonable terms from one or more of the partners partner, in its sole and absolute discretion, believes without notification to any of the other partners, and to be advisable. Except as expressly permitted by the all or a portion of your partnership's property may be AIMCO Operating Partnership Agreement, neither the conveyed as security for any indebtedness; provided, general partner nor any of its affiliates may sell, however, that the borrowing from limited partners will transfer or convey any property to the AIMCO Operating be undertaken only to the extent allowed by applica- Partnership, directly or indirectly, except pursuant to ble law. The time and amounts of repayment for such transactions that are determined by the general partner loans will be in the sole discretion of the general in good faith to be fair and reasonable. partner and payments of principal and interest will be fully paid prior to any distribution of funds to the partners unless such loans contain a specific provision to the contrary. The partner who lends money to your partnership will be considered an unrelated creditor with respect to such loans to the extent allowed by applicable law. Any loans from the general partner or its affiliates will accrue interest at the greater of 2 1/2% over the prime interest rate charged by the Third National Bank in Nashville, adjusted monthly, or the general partner's or its affiliate's actual interest cost in borrowing such amounts.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to borrow money in the ordinary course of business and restrictions on borrowings, and the general partner has as security therefore to mortgage all or any part of full power and authority to borrow money on behalf of the real property of your partnership in addition to the AIMCO Operating Partnership. The AIMCO Operating obtaining loans specifically provided for in your Partnership has credit agreements that restrict, among partnership's agreement of limited partnership. other things, its ability to incur
S-62 4196 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 the limited partners to have access to the with a statement of the purpose of such demand and at current list of the names and address of all limited such OP Unitholder's own expense, to obtain a current partners at all reasonable times at the principal list of the name and last known business, residence or office of your partnership. mailing address of the general partner and each other OP Unitholder.
Management Control Subject to the limitations set forth under applicable All management powers over the business and affairs of law and the terms of your partnership's agreement of the AIMCO Operating Partnership are vested in AIMCO-GP, limited partnership, the general partner of your Inc., which is the general partner. No OP Unitholder partnership has the power to do all things set forth in has any right to participate in or exercise control or your partnership's agreement of limited partnership. management power over the business and affairs of the The general partner represents your partnership in all AIMCO Operating Partnership. The OP Unitholders have transactions with third parties. No limited partner has the right to vote on certain matters described under any right or power to take part in any way in the "Comparison of Ownership of Your Units and AIMCO OP management of your partnership business except as may Units -- Voting Rights" below. The general partner may be expressly provided in your partnership's agreement not be removed by the OP Unitholders with or without of limited partnership or by applicable statutes. 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 will not incur any the AIMCO Operating Partnership Agreement, the general liability to your partnership or any other partner for partner is not liable to the AIMCO Operating any mistakes or errors in judgment or for any act or Partnership for losses sustained, liabilities incurred omission believed by it in good faith to be within the or benefits not derived as a result of errors in scope of authority conferred upon it by your judgment or mistakes of fact or law of any act or partnership's agreement of limited partnership. In omission if the general partner acted in good faith. addition, your partnership will, to the extent The AIMCO Operating Partnership Agreement provides for permitted by law, indemnify and save harmless the indemnification of AIMCO, or any director or officer of general partner against and from any personal loss, AIMCO (in its capacity as the previous general partner liability (including attorneys' fees) or damage of the AIMCO Operating Partnership), the general incurred by it as the result of any act or omission in partner, any officer or director of general partner or its capacity as general partner unless such loss, the AIMCO Operating Partnership and such other persons liability or damage results from gross negligence or as the general partner may designate from and against willful misconduct of the general partner. 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
S-63 4197 YOUR PARTNERSHIP 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 for cause following written notice to the affairs of the AIMCO Operating Partnership. The general general partner upon a vote of the limited partners partner may not be removed as general partner of the owning a 51% of the outstanding units. A general AIMCO Operating Partnership by the OP Unitholders with partner may not resign without the consent of those or without cause. Under the AIMCO Operating Partnership persons owning 51% of the units. Such consent is also Agreement, the general partner may, in its sole necessary for the approval of a new general partner. A discretion, prevent a transferee of an OP Unit from limited partner may not transfer his interests without becoming a substituted limited partner pursuant to the the written consent of the general partners which may AIMCO Operating Partnership Agreement. The general be withheld at the sole discretion of the general partner may exercise this right of approval to deter, partners. 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 Limited partners owning 51% of the units may amend your With the exception of certain circumstances set forth partnership's agreement of limited partnership, except in the AIMCO Operating Partnership Agreement, whereby that any amendment which adversely affects a limited the general partner may, without the consent of the OP partner's interest in your partnership's capital, Unitholders, amend the AIMCO Operating Partnership profits or Distributable Cash (as defined in your Agreement, amendments to the AIMCO Operating partnership's agreement of limited partnership) must be Partnership Agreement require the consent of the approved by such limited partner. On its own motion or holders of a majority of the outstanding Common OP the written request of the limited partner owning at Units, excluding AIMCO and certain other limited least 10% of the units, the general partner will submit exclusions (a "Majority in Interest"). Amendments to the proposed amendment to the limited partner together the AIMCO Operating Partnership Agreement may be with its recommendation as to such proposal. The proposed by the general partner or by holders of a general partner may require a response within a Majority in Interest. Following such proposal, the specified time, but not less than thirty days and general partner will submit any proposed amendment to failure to respond in such time will constitute a vote the OP Unitholders. The general partner will seek the which is consistent with the recommendation of the written consent of the OP Unitholders on the proposed limited partners. amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner but capacity as general partner of the AIMCO Operating may receive fees for additional services. Moreover, the Partnership. In addition, the AIMCO Operating Part- general partner or certain affiliates may be entitled nership is responsible for all expenses incurred to compensation for additional services rendered. 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-64 4198 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, the liability of each of the limited negligence, no OP Unitholder has personal liability for partners for its share of the losses or debts of your the AIMCO Operating Partnership's debts and partnership is limited to the total capital contribu- obligations, and liability of the OP Unitholders for tion of such limited partner plus, to the extent that the AIMCO Operating Partnership's debts and obligations such limited partner has rightfully received the return is generally limited to the amount of their invest- of such capital contribution, any sum, not in excess of ment in the AIMCO Operating Partnership. However, the such return, necessary to discharge liabilities of your limitations on the liability of limited partners for partnership to all creditors who extended credit before the obligations of a limited partnership have not been such return; provided that the liability with respect clearly established in some states. If it were to rightfully returned capital contributions is limited determined that the AIMCO Operating Partnership had to one year from the date of such return. been conducting business in any state without compli- Notwithstanding the foregoing, the original limited ance with the applicable limited partnership statute, partner only may be subject to a mandatory assessment or that the right or the exercise of the right by the of an amount not exceeding 50% of its total capital holders of OP Units as a group to make certain contribution as provided in your partnership's amendments to the AIMCO Operating Partnership Agreement agreement of limited partnership. 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 act as a partnership agreement, Delaware law generally requires fiduciary with respect of the assets and business of a general partner of a Delaware limited partnership to your partnership. The general partner must use its best adhere to fiduciary duty standards under which it owes efforts to do all things and perform such duties as may its limited partners the highest duties of good faith, be reasonably necessary to the successful operation of fairness and loyalty and which generally prohibit such your partnership. The general partner must devote such general partner from taking any action or engaging in of its time and that of its employees to your any transaction as to which it has a conflict of partnership business as may be reasonably necessary to interest. The AIMCO Operating Partnership Agreement carry on and conduct your partnership's business. expressly authorizes the general partner to enter into, However, except as specifically provided in your on behalf of the AIMCO Operating Partnership, a right partnership, the partners may engage in whatever of first opportunity arrangement and other conflict activities they choose, whether the same be competitive avoidance agreements with various affiliates of the with your partnership or otherwise, including without AIMCO Operating Partnership and the general partner, on limitation, the acquisition, ownership, financing, such terms as the general partner, in its sole and syndication, development, improvement, leasing, absolute discretion, believes are advisable. The AIMCO operation, management and brokerage of real property Operating Partnership Agreement expressly limits the (including real property that may be in the vicinity of liability of the general partner by providing that the and competitive with real property owned by your general partner, and its officers and directors will partnership), without having or incurring any not be liable or accountable in damages to the AIMCO obligation to disclose or to offer any interest in such Operating Partnership, the limited partners or activities to any party to your partnership's agreement assignees for errors in judgment or mistakes of fact or of limited 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 4199 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 Nature of Investment YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS 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 51% of the outstanding units, the the holders of the Preferred OP respect to certain limited matters limited 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 limitations; dissolve and terminate Units" in the accompanying transactions such as the your partnership; remove a general Prospectus. So long as any institution of bankruptcy partner for cause, approve the Preferred OP Units are outstand- proceedings, an assignment for the retirement of a general partner, ing, in addition to any other vote benefit of creditors and certain approve the admission of a new or consent of partners required by transfers by the general partner of general partner; and approve or law or by the AIMCO Operating its interest in the AIMCO Operating disap- Partnership Agree- Part-
S-66 4200 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS prove the sale of all or a material ment, the affirmative vote or nership or the admission of a portion of your partnership's consent of holders of at least 50% successor general partner. property. of the outstanding Preferred OP Units will be necessary for Under the AIMCO Operating Partner- A 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, the Unit Designation of the Preferred acquisition, sale, transfer, limited partners holding 51% of the OP Units that materially and exchange or other disposition of aggregate units may, within ninety adversely affects the rights or any assets of the AIMCO Operating days of such occurrence, vote to preferences of the holders of the Partnership (including, but not continue the business of your Preferred OP Units. The creation or limited to, the exercise or grant partnership. If no general partner issuance of any class or series of of any conversion, option, remains in office, all of the partnership units, including, privilege or subscription right or limited partners may elect to re- without limitation, any partner- any other right available in form your partnership and elect a ship units that may have rights connection with any assets at any successor general partner whereupon senior or superior to the Preferred time held by the AIMCO Operating your partnership will be dissolved OP Units, shall not be deemed to Partnership) or the merger, and all of the assets and materially adversely affect the consolidation, reorganization or liabilities of your partnership rights or preferences of the other combination of the AIMCO will be contributed to a new holders of Preferred OP Units. With Operating Partnership with or into partnership and all parties to your respect to the exercise of the another entity, all without the partnership's agreement of limited above described voting rights, each consent of the OP Unitholders. partnership will become parties to Preferred OP Units shall have one such new partnership. (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 from Distributable $ per Preferred OP Unit; tribute quarterly all, or such Cash (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 the fifth anniversary of the issue determine, of Available Cash (as quarterly, on or about January 15, date of the Preferred OP Units, the defined in the AIMCO Operating April 15, July 15 and October 15 AIMCO Operating Partnership may Partnership Agreement) generated by for each fiscal year, or for such adjust the annual distribution rate the AIMCO Operating Partnership shorter period as may be on the Preferred OP Units to the during such quarter to the general applicable. 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. Your preferred stock which ranks on a interests in the AIMCO Operating partnership has made distributions parity with its Class H Cumu- Partnership on such record date. in the past but is not projected to Holders of any other Pre- make distributions in 1998.
S-67 4201 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 and such person Preferred OP Units and the OP Units. The AIMCO Operating Part- will become a substitute limited Preferred OP Units are not listed nership Agreement restricts the partner if: (1) a written on any securities exchange. The transferability of the OP Units. assignment has been duly executed Preferred OP Units are subject to Until the expiration of one year and acknowledged by the assignor restrictions on transfer as set from the date on which an OP and assignee and delivered to the forth in the AIMCO Operating Unitholder acquired OP Units, general partners, (2) the approval Partnership Agreement. subject to certain exceptions, such of the general partners which may OP Unitholder may not transfer all be withheld in the sole discretion Pursuant to the AIMCO Operating or any portion of its OP Units to and which will be withheld if the Partnership Agreement, until the any transferee without the consent general partners reasonably believe expiration of one year from the of the general partner, which that the transfer violates date on which a holder of Preferred consent may be withheld in its sole applicable securities law or result OP Units acquired Preferred OP and absolute discretion. After the in adverse tax consequences, Units, subject to certain expiration of one year, such OP including the termination of your exceptions, such holder of Unitholder has the right to partnership for tax purposes, (3) Preferred OP Units may not transfer transfer all or any portion of its the assignee has agreed to be bound all or any portion of its Pre- OP Units to any person, subject to by all of the terms of your ferred OP Units to any transferee the satisfaction of certain partnership's agreement of limited without the consent of the general conditions specified in the AIMCO partnership and absolute discre- partner, which consent may be Operating Partnership Agreement, tion of the general partner has withheld in its sole and absolute including the general partner's been granted, (4) the assignee discretion. After the expiration of right of first refusal. See represents he is at least 18 years one year, such holders of Preferred "Description of OP Units -- of age, is a citizen and resident OP Units has the right to transfer Transfers and Withdrawals" in the of the U.S., has sufficient finan- all or any portion of its Preferred accompanying Prospectus. cial resources to maintain the OP Units to any person, subject to interest ac- the satisfaction of
S-68 4202 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS quired and that he is not acquiring certain conditions specified in the After the first anniversary of the interest with a view to resell AIMCO Operating Partnership Agree- becoming a holder of Common OP the interest and (5) the assignor ment, including the general Units, an OP Unitholder has the and assignee have complied with partner's right of first refusal. right, subject to the terms and such other conditions as set forth conditions of the AIMCO Operating in your partnership's agreement of After a one-year holding period, a Partnership Agreement, to require limited partnership. holder may redeem Preferred OP the AIMCO Operating Partnership to There are no redemption rights Units and receive in exchange redeem all or a portion of the associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 4203 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 generated in that capacity from your partnership. The property manager received management fees of $37,726 in 1996, $39,386 in 1997 and $20,480 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's 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'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 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-70 4204 YOUR PARTNERSHIP GENERAL Thurber Manor Associates is a Delaware limited partnership which raised net proceeds of approximately $1,875,000 in 1984 through a private offering. The promoter for the private offering of your partnership was Jacques-Miller. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 46 limited partners of your partnership and a total of 18.75 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on July 31, 1984 for the purpose of owning and operating a single apartment property located in Columbus, Ohio, known as "Thurber Manor Apartments." Your partnership's property consists of 115 apartment units. The total rentable square footage of your partnership's property is 104,998 square feet. The average annual rent per apartment unit is approximately $6,497. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $37,726, $39,386 and $20,480, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2008 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 4205 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,341,104, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $83,190, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 4206 Below is selected financial information for Thurber Manor Associates, L.P. taken from the financial statements described above. The 1994 and 1993 amounts have been derived from audited financial statements which are not included with the prospectus supplement. See "Index to Financial Statements."
THURBER MANOR ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 125,758 $ 126,184 $ 112,135 $ 150,747 $ 151,091 $ 178,230 $ 195,692 Land & Building.............. 3,214,974 3,148,661 3,182,354 3,101,631 2,982,482 2,855,793 2,798,267 Accumulated Depreciation..... (2,147,817) (2,060,869) (2,104,342) (2,017,395) (1,937,893) (1,872,768) (1,760,297) Other Assets................. 236,686 218,046 247,627 231,914 239,714 282,912 296,431 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 1,429,601 $ 1,432,022 $ 1,437,774 $ 1,466,897 $ 1,435,394 $ 1,444,167 $ 1,530,093 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... $ 2,319,089 $ 2,383,948 $ 2,356,670 $ 2,408,823 $ 2,456,618 $ 2,500,418 $ 2,540,556 Other Liabilities............ 78,065 58,704 108,653 152,687 98,845 95,853 102,556 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 2,397,154 2,442,652 2,465,323 2,561,510 2,555,463 2,596,271 2,642,927 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $ (967,553) $(1,010,630) $(1,027,549) $(1,094,613) $(1,120,069) $(1,152,104) $(1,112,834) =========== =========== =========== =========== =========== =========== ===========
THURBER MANOR ASSOCIATES, L.P. -------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------- ---------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA Rental Revenue................................ $389,988 $364,184 $747,177 $705,499 $687,861 $656,185 $650,672 Other Income.................................. 19,951 22,285 47,932 56,360 40,129 40,792 32,035 -------- -------- -------- -------- -------- -------- -------- Total Revenue........................ 409,939 386,468 795,109 761,859 727,990 696,977 682,707 -------- -------- -------- -------- -------- -------- -------- Operating Expenses............................ 172,863 150,707 335,435 331,812 291,032 298,750 264,162 General & Administrative...................... 11,424 11,209 29,848 29,459 33,719 26,584 42,584 Depreciation.................................. 43,474 43,474 86,947 79,502 75,185 112,471 162,753 Interest Expense.............................. 92,961 95,703 219,984 224,343 228,338 232,097 224,392 Property Taxes................................ 29,221 1,393 55,831 56,287 47,681 46,895 47,981 -------- -------- -------- -------- -------- -------- -------- Total Expenses....................... 349,943 302,485 728,045 721,403 675,955 716,797 741,872 -------- -------- -------- -------- -------- -------- -------- Net Income.................................... $ 59,996 $ 83,983 $ 67,064 $ 40,456 $ 52,035 $(19,820) $(59,165) ======== ======== ======== ======== ======== ======== ========
S-73 4207 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $59,996 for the six months ended June 30, 1998, compared to $83,983 for the six months ended June 30, 1997. The decrease in net income of $23,987, or 28.56% was primarily the result of a casualty loss, coupled with increased operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $409,939 for the six months ended June 30, 1998, compared to $386,469 for the six months ended June 30, 1997, an increase of $23,470, or 6.07%. This was primarily a result of an increase occupancy levels and market rental rates. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $172,863 for the six months ended June 30, 1998, compared to $150,707 for the six months ended June 30, 1997, an increase of $22,156 or 14.70%. This increase was primarily the result of an increase in salaries and personnel expenses and asset management fees. Management expenses totaled $20,480 for the six months ended June 30, 1998, compared to $19,412 for the six months ended June 30, 1997, an increase of $1,068, or 5.50%. The increase resulted from an increase in rental revenues, as management fees are calculated based on a percentage of revenues. General and Administrative Expenses General and administrative expenses totaled $11,424 for the six months ended June 30, 1998 compared to $11,209 for the six months ended June 30, 1997, an increase of $215 or 1.92%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $92,961 for the six months ended June 30, 1998, compared to $95,703 for the six months ended June 30, 1997, a decrease of $2,742, or 2.87%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $67,064 for the year ended December 31, 1997, compared to $40,456 for the year ended December 31, 1996. The increase in net income of $26,608, or 65.77% was primarily the result of an increase in rental revenue due to an increase in occupancy levels and market rent rates. These factors are discussed in more detail in the following paragraphs. S-74 4208 Revenues Rental and other property revenues from the partnership's property totaled $795,109 for the year ended December 31, 1997, compared to $761,859 for the year ended December 31, 1996, an increase of $33,250, or 4.36%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $335,435 for the year ended December 31, 1997, compared to $331,812 for the year ended December 31, 1996, an increase of $3,623 or 1.09%. Management expenses totaled $39,386 for the year ended December 31, 1997, compared to $37,726 for the year ended December 31, 1996, an increase of $1,660, or 4.40%. General and Administrative Expenses General and administrative expenses totaled $29,848 for the year ended December 31, 1997 compared to $29,459 for the year ended December 31, 1996, an increase of $389 or 1.32%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $219,984 for the year ended December 31, 1997, compared to $224,343 for the year ended December 31, 1996, a decrease of $4,359, or 1.94%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $40,456 for the year ended December 31, 1996, compared to $52,035 for the year ended December 31, 1995. The decrease in net income of $11,579, or 22.25% was primarily the result of a greater increase in the operating expenses than in rental revenue. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $761,859 for the year ended December 31, 1996, compared to $727,990 for the year ended December 31, 1995, an increase of $33,869, or 4.65%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $331,812 for the year ended December 31, 1996, compared to $291,032 for the year ended December 31, 1995, an increase of $40,780 or 14.01%. This increase was primarily the result of an increase in exterior property improvement costs. Management expenses totaled $37,726 for the year ended December 31, 1996, compared to $36,107 for the year ended December 31, 1995, an increase of $1,619, or 4.48%. General and Administrative Expenses General and administrative expenses totaled $29,459 for the year ended December 31, 1996 compared to $33,719 for the year ended December 31, 1995, a decrease of $4,260 or 12.63%. The decrease is primarily due to a general decrease in various administrative expenses. S-75 4209 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $224,343 for the year ended December 31, 1996, compared to $228,338 for the year ended December 31, 1995, a decrease of $3,995, or 1.75%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $125,758 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 will not incur any liability to your partnership or any other partner for any mistakes or errors in judgment or for any act or omission believed by it in good faith to be within the scope of authority conferred upon it by your partnership's agreement of limited partnership. 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 owned by AIMCO. See "Conflicts of Interest". Your partnership will, to the extent permitted by law, indemnify and save harmless the general partner against and from any personal loss, liability (including attorneys' fees) or damage incurred by it as the result of any act or omission in its capacity as general partner unless such loss, liability or damage results from gross negligence or willful misconduct of the general partner. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $1,000.00 1995........................................................ 1,028.26 1996........................................................ 771.20 1997........................................................ 0.00 1998 (through June 30)...................................... 0.00
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for S-76 4210 tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $30,165 1996........................................... 25,434 1997........................................... 26,608 1998 (through June 30).........................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $36,107 1996........................................... 37,726 1997........................................... 39,386 1998 (through June 30)......................... 20,480
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-77 4211 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Thurber Manor Associates, L.P. at December 31, 1997, 1996 and 1995, and for the years then ended, appearing in this Prospectus Supplement have been audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. S-78 4212 INDEX FINANCIAL STATEMENT
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (Unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (Unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-6 Balance Sheets as of December 31, 1997 and 1996............. F-7 Statement of Operations and Changes in Partners' Deficit for the years ended December 31, 1997 and 1996................ F-8 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-9 Notes to Financial Statements............................... F-10 Independent Auditors' Report................................ F-14 Balance Sheets as of December 31, 1996 and 1995............. F-15 Statements of Operations and Changes in Partners' Deficit for the years ended December 31, 1996 and 1995............ F-16 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-17 Notes to Financial Statements............................... F-18
F-1 4213 THURBER MANOR ASSOCIATES, LIMITED CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 125,758 Receivables and Deposits.................................... 51,881 Investments................................................. 0 Restricted Escrows.......................................... 125,220 Other Assets................................................ 59,585 Investment Property: Land...................................................... $ 176,415.0 Building and related personal property.................... 3,038,559 ----------- 3,214,974 Less: Accumulated depreciation.............................. (2,147,817) 1,067,157 ----------- ---------- Total Assets...................................... $1,429,601 ========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ 11,749 Other Accrued Liabilities................................... 15,211 Property Taxes Payable...................................... 29,221 Tenant Security Deposits.................................... 21,884 Notes Payable............................................... 2,319,089 Partners' (Deficit)......................................... (967,553) ---------- Total Liabilities and Partners' Deficit........... $1,429,601 ==========
F-2 4214 THURBER MANOR ASSOCIATES, LIMITED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $389,988 $364,184 Other Income.............................................. 19,951 22,285 -------- -------- Total Revenues.................................... 409,939 386,469 Expenses: Operating Expenses........................................ 172,863 150,707 General and Administrative Expenses....................... 11,424 11,209 Depreciation Expense...................................... 43,474 43,474 Interest Expense.......................................... 92,961 95,703 Property Tax Expense...................................... 29,221 1,393 -------- -------- Total Expenses.................................... 349,943 302,486 Net Income........................................ $ 59,996 $ 83,983 ======== ========
F-3 4215 THURBER MANOR ASSOCIATES, LIMITED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30 ------------------- 1998 1997 -------- -------- Operating Activities: Net Income (loss)......................................... $ 59,996 $ 83,983 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 43,474 43,474 Changes in accounts: Receivables and deposits and other assets............ 12,295 14,161 Accounts Payable and accrued expenses................ (29,179) (83,365) -------- -------- Net cash provided by (used in) operating activities....................................... 86,586 58,253 -------- -------- Investing Activities: Property improvements and replacements.................... (32,619) (47,030) Net (increase)/decrease in restricted escrows............. (2,763) (2,489) -------- -------- Net cash provided by (used in) investing activities....................................... (35,382) (49,519) -------- -------- Financing Activities: Payments on mortgage...................................... (37,581) (33,298) -------- -------- Net cash provided by (used in) financing activities....................................... (37,581) (33,298) -------- -------- Net increase (decrease) in cash and cash equivalents...................................... 13,623 (24,564) Cash and cash equivalents at beginning of year.............. 112,135 150,747 -------- -------- Cash and cash equivalents at end of period.................. $125,758 $126,183 ======== ========
F-4 4216 THURBER MANOR ASSOCIATES, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Thurber Manor Associates, Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 4217 INDEPENDENT AUDITORS' REPORT General Partners Thurber Manor Associates, Limited: We have audited the accompanying balance sheets of Thurber Manor Associates, Limited as of December 31, 1997 and 1996, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Thurber Manor Associates, Limited as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, SC February 18, 1998 F-6 4218 THURBER MANOR ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 112,135 $ 150,747 Receivables and deposits.................................... 66,274 49,095 Restricted escrows (Note B)................................. 122,457 117,424 Other assets................................................ 58,896 65,395 Investment properties (Note C): Land...................................................... 176,415 176,415 Buildings and related personal property................... 3,005,939 2,925,216 ----------- ----------- 3,182,354 3,101,631 Less accumulated depreciation............................. (2,104,342) (2,017,395) ----------- ----------- 1,078,012 1,084,236 ----------- ----------- $ 1,437,774 $ 1,466,897 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 10,639 $ 53,686 Tenant security deposit liabilities....................... 23,293 24,462 Accrued taxes............................................. 55,659 55,705 Other liabilities......................................... 19,062 18,834 Mortgage notes payable (Note C)........................... 2,356,670 2,408,823 Partners' Deficit........................................... (1,027,549) (1,094,613) ----------- ----------- $ 1,437,774 $ 1,466,897 =========== ===========
See accompanying notes to financial statements. F-7 4219 THURBER MANOR ASSOCIATES, LIMITED STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, --------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 747,177 $ 705,499 Other income.............................................. 47,932 56,360 ----------- ----------- Total revenues.................................... 795,109 761,859 ----------- ----------- Expenses: Operating (Note D)........................................ 335,435 331,812 General and administrative................................ 29,848 29,459 Depreciation.............................................. 86,947 79,502 Interest.................................................. 219,984 224,343 Property taxes............................................ 55,831 56,287 ----------- ----------- Total expenses.................................... 728,045 721,403 ----------- ----------- Net income.................................................. 67,064 40,456 Distributions to partners................................... -- (15,000) Partners' deficit at beginning of year...................... (1,094,613) (1,120,069) ----------- ----------- Partners' deficit at end of year............................ $(1,027,549) $(1,094,613) =========== ===========
See accompanying notes to financial statements. F-8 4220 THURBER MANOR ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------- 1997 1996 ---------- ----------- Cash flows from operating activities: Net income................................................ $ 67,064 $ 40,456 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 86,947 79,502 Amortization of discounts and loan costs............... 29,924 29,101 Change in accounts: Receivables and deposits............................. (17,179) 6,951 Other assets......................................... (4,556) -- Accounts payable..................................... (43,047) 48,355 Tenant security deposit liabilities.................. (1,169) 2,930 Accrued taxes........................................ (46) 8,685 Other liabilities.................................... 228 (6,128) -------- --------- Net cash provided by operating activities......... 118,166 209,852 -------- --------- Cash flows from investing activities: Property improvements and replacements.................... (80,723) (119,149) Net (deposits to) receipts from restricted escrows........ (5,033) 11,326 -------- --------- Net cash used in investing activities............. (85,756) (107,823) -------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (71,022) (65,841) Distributions to partners................................. -- (15,000) -------- --------- Net cash used in financing activities............. (71,022) (80,841) -------- --------- Net increase (decrease) in cash and cash equivalents........ (38,612) 21,188 Cash and cash equivalents at beginning of year.............. 150,747 129,559 -------- --------- Cash and cash equivalents at end of year.................... $112,135 $ 150,747 ======== ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $190,060 $ 195,242 ======== =========
See accompanying notes to financial statements. F-9 4221 THURBER MANOR ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Thurber Manor Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated August 13, 1984. The Partnership owns and operates a 115 unit apartment complex, Thurber Manor Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $54,339 and $65,395, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. F-10 4222 THURBER MANOR ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Reserve Escrow -- A portion of the proceeds of the 1992 loan refinancing was placed into a reserve escrow. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. .... $122,457 $117,424 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $21,230, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $2,378,949 $2,449,971 Second mortgage note payable in interest only monthly installments of $527, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 83,190 83,190 ---------- ---------- Principal balance at year end............................... 2,462,139 2,533,161 Less unamortized discount................................... (105,469) (124,338) ---------- ---------- $2,356,670 $2,408,823 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 76,612 1999..................................................... 82,642 2000..................................................... 89,146 2001..................................................... 96,162 2002..................................................... 2,117,577 ---------- $2,462,139 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-11 4223 THURBER MANOR ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee................................... $39,386 $37,726 Partnership administration fee................... $ 7,194 $ 7,545 Reimbursement for services of affiliates......... $15,573 $14,295 Construction oversight costs..................... $ 3,841 $ 3,594
F-12 4224 THURBER MANOR ASSOCIATES, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-13 4225 INDEPENDENT AUDITORS' REPORT General Partners Thurber Manor Associates, Limited: We have audited the accompanying balance sheets of Thurber Manor Associates, Limited as of December 31, 1996 and 1995, and the related statements of operations and changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Thurber Manor Associates, Limited as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, SC February 25, 1997 F-14 4226 THURBER MANOR ASSOCIATES, LIMITED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 150,747 $ 129,559 Restricted-tenant security deposits....................... 24,462 21,532 Accounts receivable......................................... -- 1,494 Escrow for taxes............................................ 24,633 33,020 Restricted escrows (Note B)................................. 117,424 128,750 Other assets................................................ 65,395 76,450 Investment properties (Notes C): Land...................................................... 176,415 176,415 Building and related personal property.................... 2,925,216 2,806,067 ----------- ----------- 3,101,631 2,982,482 Less accumulated depreciation............................. (2,017,395) (1,937,893) ----------- ----------- 1,084,236 1,044,589 ----------- ----------- $ 1,466,897 $ 1,435,394 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable............................................ $ 53,686 $ 5,331 Tenant security deposits.................................... 24,462 21,532 Accrued taxes............................................... 55,705 47,020 Other liabilities........................................... 18,834 24,962 Mortgage notes payable (Note C)............................. 2,408,823 2,456,618 Partners' deficit........................................... (1,094,613) (1,120,069) ----------- ----------- $ 1,466,897 $ 1,435,394 =========== ===========
See accompanying notes to financial statements. F-15 4227 THURBER MANOR ASSOCIATES, LIMITED STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 705,499 $ 687,861 Other income.............................................. 56,360 40,129 ----------- ----------- Total revenues.................................... 761,859 727,990 ----------- ----------- Expenses: Operating (Note D)........................................ 229,889 220,076 General and administrative (Note D)....................... 29,459 33,719 Maintenance............................................... 101,923 70,956 Depreciation.............................................. 79,502 75,185 Interest.................................................. 224,343 228,338 Property taxes............................................ 56,287 47,681 ----------- ----------- Total expenses.................................... 721,403 675,955 ----------- ----------- Net income.................................................. 40,456 52,035 Distributions to partners................................... (15,000) (20,000) Partners' deficit at beginning of year...................... (1,120,069) (1,152,104) ----------- ----------- Partners' deficit at end of year............................ $(1,094,613) $(1,120,069) =========== ===========
See accompanying notes to financial statements. F-16 4228 THURBER MANOR ASSOCIATES, LIMITED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Cash flows from operating activities: Net income................................................ $ 40,456 $ 52,035 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 79,502 75,185 Amortization of discounts and loan costs............... 29,101 28,291 Change in accounts: Restricted cash...................................... (2,930) (2,896) Accounts receivable.................................. 1,494 69 Escrow for taxes..................................... 8,387 (2,345) Accounts payable..................................... 48,355 (660) Tenant security deposit liabilities.................. 2,930 2,094 Accrued taxes........................................ 8,685 604 Other liabilities.................................... (6,128) 954 --------- --------- Net cash provided by operating activities......... 209,852 153,331 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (119,149) (136,749) Deposits to restricted escrows............................ (5,242) (5,361) Receipts from restricted escrows.......................... 16,568 39,780 --------- --------- Net cash used in investing activities............. (107,823) (102,330) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (65,841) (61,036) Distributions to partners................................. (15,000) (20,000) --------- --------- Net cash used in financing activities............. (80,841) (81,036) --------- --------- Net increase (decrease) in cash and cash equivalents........ 21,188 (30,035) Cash and cash equivalents at beginning of year.............. 129,559 159,594 --------- --------- Cash and cash equivalents at end of year.................... $ 150,747 $ 129,559 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 195,242 $ 200,047 ========= =========
See accompanying notes to financial statements. F-17 4229 THURBER MANOR ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Thurber Manor Associates, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated August 13, 1984. The Partnership owns and operates a 115 unit apartment complex, Thurber Manor Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Depreciation Depreciation is computed principally by use of the declining balance and straight-line methods based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and the personal property assets are depreciated over a 5 to 10 year period. Other Assets Other assets at December 31, 1996 and 1995 consist of deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Income Taxes On the basis of legal counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net income or partners' deficit as previously reported. F-18 4230 THURBER MANOR ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in calendar year 1996. .................................................... $ -- $ 10,458 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. ................................................ 117,424 118,292 -------- -------- $117,424 $128,750 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $21,230, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $2,449,971 $2,515,812 Second mortgage note payable in interest only monthly installments of $527, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 83,190 83,190 ---------- ---------- Principal balance at year end............................... 2,533,161 2,599,002 Less unamortized discount................................... (124,338) (142,384) ---------- ---------- $2,408,823 $2,456,618 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 71,022 1998..................................................... 76,612 1999..................................................... 82,642 2000..................................................... 89,146 2001..................................................... 96,162 Thereafter............................................... 2,117,577 ---------- $2,533,161 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-19 4231 THURBER MANOR ASSOCIATES, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Management fee................................... $37,726 $36,107 Partnership administration fee................... $ 7,545 $ 7,223 Reimbursement for services of affiliates......... $14,295 $19,218 Construction oversight costs..................... $ 3,594 $ 3,724
F-20 4232 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 4233 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 4234 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 September , 1998 A-3 4235 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF VILLA NOVA, 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 4236 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 Villa Nova, 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-29 Expected Benefits of the Offer............... S-30 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-35 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-36 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-41 General...................................... S-41 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 4237
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership............. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76
PAGE ---- Distributions and Transfers of Units......... S-76 Beneficial Ownership of Interests in Your Partnership................................ S-76 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 4238 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 Villa Nova, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 4239 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 4240 - 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 $0 per unit 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). 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 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. 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 S-3 4241 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 4242 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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. 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-5 4243 (This page intentionally left blank) S-6 4244 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. 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. 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 5 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. 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 S-7 4245 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 4246 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 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 S-9 4247 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 4248 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, 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. 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 S-11 4249 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 4250 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. 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." S-13 4251 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 4252 - 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 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 4253 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 4254 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 4255 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 is not subject to such limitations. 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $20,000 annually for its services as general partner of your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $41,083 in 1996, $41,398 in 1997 and $21,568 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 Your Partnership and its Property. Villa Nova, Limited Partnership is a Tennessee limited partnership which was formed on April 20, 1984 for the purpose of owning and operating a single apartment property located in Indianapolis, Indiana, known as "Villa Nova Apartments". In 1984, it completed a private placement of units that raised net proceeds of approximately $2,012,500. Villa Nova Apartments consists of 126 apartment units. Your partnership has no employees. S-18 4256 Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on July 1, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,359,299, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $83,835, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 4257 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 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 4258
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 4259 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 4260
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 4261 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 4262 SUMMARY FINANCIAL INFORMATION OF VILLA NOVA, LIMITED PARTNERSHIP The summary financial information of Villa Nova, Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Villa Nova, Limited Partnership for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on financial statements. This information should be read in conjunction with such unaudited financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements." VILLA NOVA, LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues......... $ 429,544 $ 400,843 $ 834,683 $ 775,968 $ 807,989 $ 747,111 $ 689,533 Net Income/(Loss)............ (52,581) (6,647) (56,780) (85,602) (29,963) (67,759) (252,200) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation... 520,215 641,741 577,889 697,345 811,624 925,845 1,060,596 Total Assets........... 945,778 1,082,099 984,649 1,086,857 1,231,309 1,313,395 1,482,809 Mortgage Notes Payable, including Accrued Interest................... 2,345,040 2,392,160 2,374,717 2,427,264 2,475,420 2,519,551 2,559,993 Partners' Capital/(Deficit).......... (1,477,617) (1,374,903) (1,425,035) (1,368,255) (1,282,653) (1,251,411) (1,183,652)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP ------------------------- YOUR 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 $0
S-25 4263 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. 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 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 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. S-26 4264 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 Code. 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 therefore 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 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. 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 S-27 4265 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 of $ 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 $0 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 S-28 4266 AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs. Moody's 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 levels 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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). S-29 4267 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. Also, there are currently no distributions paid on your units which there are expected to be regular, quarterly distributions on OP Units. 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-30 4268 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 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 4269 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 4270 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 4271 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. 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 S-34 4272 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." 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. 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. S-35 4273 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, (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 9:00 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 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, Denver, Colorado 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. S-36 4274 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-37 4275 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 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 S-38 4276 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 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 S-39 4277 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-40 4278 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. 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. DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. S-41 4279 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 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 S-42 4280 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 payment. 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 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 S-43 4281 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-44 4282 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-45 4283 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-46 4284 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-47 4285 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-48 4286 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-49 4287 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 4288 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-51 4289 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 4290 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 4291 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 4292 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 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, a third party expert, that the cash 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 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, 1998 were $0 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." 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-55 4293 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................................ Not available Estimated Liquidation Proceeds............................ $
S-56 4294 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. 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-1 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-57 4295 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 4296 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 September 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 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 property was 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, S-59 4297 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 4298 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 Tennessee law for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Villa Nova Apartments. 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 July 1, 2015. Agreement") or as provided by law. See "Description of 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 and operate The purpose of the AIMCO Operating Partnership is to your partnership's property. Subject to restrictions conduct any business that may be lawfully conducted by contained in your partnership's agreement of limited a limited partnership organized pursuant to the partnership, your partnership may perform all act Delaware Revised Uniform Limited Partnership Act (as necessary or appropriate in connection therewith and amended from time to time, or any successor to such reasonably related thereto, including acquiring statute) (the "Delaware Limited Partnership Act"), additional real or personal property, borrowing money provided that such business is to be conducted in a 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-61 4299 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 35 units for cash and time to the limited partners and to other persons, and notes 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. 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 acquire property or funds or other assets to its subsidiaries or other services from, and engage in other transactions with persons in which it has an equity investment, and such persons who are partners or who are affiliates of persons may borrow funds from the AIMCO Operating partners. Any and all compensation paid to such persons Partnership, on terms and conditions established in the in connection with services performed for your partner- sole and absolute discretion of the general partner. To ship must be commensurate with that which would be paid the extent consistent with the business purpose of the to an independent person for similar services and all AIMCO Operating Partnership and the permitted agreements must be in writing. Your partnership may not activities of the general partner, the AIMCO Operating make loans to any partners but the general partner may Partnership may transfer assets to joint ventures, make loans to your partnership; provided that the limited liability companies, partnerships, interest and fees received by the general partner in corporations, business trusts or other business connection with such loans are not in excess of the entities in which it is or thereby becomes a amounts which would be charged by an unrelated bank and participant upon such terms and subject to such the general partner does not receive a finder's or conditions consistent with the AIMCO Operating Part- placement fee or commission. 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 your partnership business, whether full power and authority to borrow money on behalf of secured or unsecured. the AIMCO Operating Partnership. The AIMCO Operating 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.
S-62 4300 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 the limited partners to receive, for any with a statement of the purpose of such demand and at proper purpose, the name and address of each limited such OP Unitholder's own expense, to obtain a current partner and the number of units owned by each limited list of the name and last known business, residence or partner. Your partnership furnishes such information to mailing address of the general partner and each other any limited partner requesting the same in writing, OP Unitholder. upon payment of all costs and expenses of your partnership in connection with the preparation and forwarding of such information.
Management Control The overall management and control of your partnership All management powers over the business and affairs of business, activities and operations is vested solely in the AIMCO Operating Partnership are vested in AIMCO-GP, the general partner of your partnership. The general Inc., which is the general partner. No OP Unitholder partner has full, exclusive and complete authority and has any right to participate in or exercise control or discretion in the management and control of the management power over the business and affairs of the business and the activities and operations of your AIMCO Operating Partnership. The OP Unitholders have partnership for the purposes set forth in your the right to vote on certain matters described under partnership's agreement of limited partnership. In the "Comparison of Ownership of Your Units and AIMCO OP exercise of its authority, it makes all decisions Units -- Voting Rights" below. The general partner may affecting the conduct of the business of your not be removed by the OP Unitholders with or without partnership. The general partner possesses and may cause. enjoy and exercise all of the rights and powers of general partner as more particularly provided under In addition to the powers granted a general partner of applicable law, except to the extent any such rights a limited partnership under applicable law or that are are limited or restricted by the express provisions of granted to the general partner under any other your partnership's agreement of limited partnership. provision of the AIMCO Operating Partnership Agreement, Limited partners may not take part in the management of the general partner, subject to the other provisions of the business, affairs and operations of your the AIMCO Operating Partnership Agreement, has full partnership, transact any business for your partnership power and authority to do all things deemed necessary or have any power, right or authority to enter into any or desirable by it to conduct the business of the AIMCO agreement, execute or sign documents for, make Operating Partnership, to exercise all powers of the representations on behalf of or to otherwise act so as AIMCO Operating Partnership and to effectuate the to bind your partnership in any manner. 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, in 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 by any of them which are reasonably believed judgment or mistakes of fact or law of any act or by them to be within the scope of the authority omission if the general partner acted in good faith. conferred on them by your partnership's agreement of The AIMCO Operating Partnership Agreement provides for limited partnership, excepting only acts of malfea- indemnification of AIMCO, or any director or officer of sance, gross negligence or actual misrepresentation. In AIMCO (in its capacity as the previous general partner addition, the general partner and its affiliate are of the AIMCO Operating Partnership), the general entitled to indemnification by your partnership for any partner, any officer or director of general partner or and all acts performed by them in good faith belief the AIMCO Operating Partnership and such other persons that the act or omission was in the best interests of as the general partner may designate from and against your partnership and which are reasonably within the all losses, claims, damages, liabilities, joint or scope of the authority conferred upon them by your several, expenses (including legal fees), fines, partnership's agreement of limited partnership or by settlements and other amounts incurred in connection your partnership, excepting only acts of malfeasance, with any actions relating to the operations of the gross negligence or actual misrepresentation; provided, AIMCO Operating Partnership, as set forth in the AIMCO however, that such indemnity will be paid out of and Operating Partnership Agreement. The Delaware Limited only to the extent of your partnership's assets. Partnership Act provides that subject to the standards and restrictions, if any, set forth in its
S-63 4301 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 for cause. A general partner may not transfer, affairs of the AIMCO Operating Partnership. The general assign, sell, withdraw or otherwise dispose of its partner may not be removed as general partner of the interest unless it obtains the prior written consent of AIMCO Operating Partnership by the OP Unitholders with those persons owning more than 50% of the units and or without cause. Under the AIMCO Operating Partnership satisfies other conditions set forth in your Agreement, the general partner may, in its sole partnership's agreement of limited partnership. Such discretion, prevent a transferee of an OP Unit from consent is also necessary for the approval of a new becoming a substituted limited partner pursuant to the general partner. A limited partner may not transfer his AIMCO Operating Partnership Agreement. The general interests without the written consent of the general partner may exercise this right of approval to deter, partner which may be withheld at the sole discretion of delay or hamper attempts by persons to acquire a the general partner. 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 to change the name in the AIMCO Operating Partnership Agreement, whereby and location of the principal place of business of your the general partner may, without the consent of the OP partnership, change the name or the residence of a Unitholders, amend the AIMCO Operating Partnership partner, substitute a limited partner, correct an error Agreement, amendments to the AIMCO Operating in your partnership's agreement of limited part- Partnership Agreement require the consent of the nership and as required by law. Amendments of specified holders of a majority of the outstanding Common OP provisions of your partnership's agreement of limited Units, excluding AIMCO and certain other limited partnership may be made only with the prior written exclusions (a "Majority in Interest"). Amendments to consent of all partners. Other amendments must be the AIMCO Operating Partnership Agreement may be approved by the limited partners owning more than 50% proposed by the general partner or by holders of a of the units. Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives $20,000 annually for its services as general capacity as general partner of the AIMCO Operating partner. Moreover, the general partner or certain Partnership. In addition, the AIMCO Operating Part- affiliates may be entitled to compensation for nership is responsible for all expenses incurred additional services rendered. 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-64 4302 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, limited partners are not subject to negligence, no OP Unitholder has personal liability for assessment nor personally liable for any of the debts the AIMCO Operating Partnership's debts and or obligations of your partnership or any of the losses obligations, and liability of the OP Unitholders for of your partnership beyond their obligations to the AIMCO Operating Partnership's debts and obligations contribute to the capital of your partnership as is generally limited to the amount of their invest- specified in your partnership's agreement of limited ment in the AIMCO Operating Partnership. However, the partnership and as otherwise provided by law. 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 must manage and control the affairs Unless otherwise provided for in the relevant of your partnership to the best of its abilities and partnership agreement, Delaware law generally requires use its best efforts to carry out the business of your a general partner of a Delaware limited partnership to partnership as set forth in your partnership's adhere to fiduciary duty standards under which it owes agreement of limited partnership. The general partner its limited partners the highest duties of good faith, must devote such time and attention to the business, fairness and loyalty and which generally prohibit such affairs and operations of your partnership as may be general partner from taking any action or engaging in necessary for the proper performance of its duties. any transaction as to which it has a conflict of However, the general partner may engage in or hold interest. The AIMCO Operating Partnership Agreement interests in other business ventures of every kind and expressly authorizes the general partner to enter into, description for its own account including, without on behalf of the AIMCO Operating Partnership, a right limitation, ventures such as those undertaken by your of first opportunity arrangement and other conflict partnership and your partnership and the partners will avoidance agreements with various affiliates of the have no rights in and to such independent business AIMCO Operating Partnership and the general partner, on ventures or the income and profits derived therefrom. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 4303 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 limitations; dissolve and Units" in the accompanying transactions such as the terminate your partnership; remove Prospectus. So long as any institution of bankruptcy a general partner for cause; and Preferred OP Units are outstand- proceedings, an assignment for the approve or disapprove the sale of ing, in addition to any other vote benefit of creditors and certain all or substantially all of the or consent of partners required by transfers by the general partner of assets of your partnership. law or by the AIMCO Operating its interest in the AIMCO Operating Partnership Agree- Part-
S-66 4304 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS A general partner may cause the ment, the affirmative vote or nership or the admission of a dissolution of your partnership by consent of holders of at least 50% successor general partner. retiring when there is no remaining of the outstanding Preferred OP general partner unless, within Units will be necessary for Under the AIMCO Operating Partner- sixty days of the retirement of the effecting any amendment of any of ship Agreement, the general partner general partner, the limited the provisions of the Partnership has the power to effect the partners owning more than 50% of Unit Designation of the Preferred acquisition, sale, transfer, the then outstanding units elect a OP Units that materially and exchange or other disposition of new general partner who decides to adversely affects the rights or any assets of the AIMCO Operating continue your partnership with the preferences of the holders of the Partnership (including, but not approval of the limited partners Preferred OP Units. The creation or limited to, the exercise or grant owning more than 50% of the then issuance of any class or series of of any conversion, option, outstanding units. 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- Your partnership may, but is not $ per Preferred OP Unit; tribute quarterly all, or such obligated to, make current provided, however, that at any time portion as the general partner may distributions out of its Cash Flow and from time to time on or after in its sole and absolute discretion as the general partner may, in its the fifth anniversary of the issue determine, of Available Cash (as discretion, determine. The date of the Preferred OP Units, the defined in the AIMCO Operating distributions payable to the AIMCO Operating Partnership may Partnership Agreement) generated by partners are not fixed in amount adjust the annual distribution rate the AIMCO Operating Partnership and depend upon the operating on the Preferred OP Units to the during such quarter to the general 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. Your of five years, and (ii) the annual established by the general partner partnership has not made dividend rate on the most recently with respect to such quarter, in distributions in the past and is issued AIMCO non-convertible accordance with their respective not projected to made distributions preferred stock which ranks on a interests in the AIMCO Operating in 1998. parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-67 4305 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 and be Preferred OP Units and the OP Units. The AIMCO Operating Part- substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the such person if: (1) the interest on any securities exchange. The transferability of the OP Units. being acquired by the assignee Preferred OP Units are subject to Until the expiration of one year consists of an integral multiple of restrictions on transfer as set from the date on which an OP half units, (2) a written forth in the AIMCO Operating Unitholder acquired OP Units, assignment has been duly executed Partnership Agreement. subject to certain exceptions, such and acknowledged by the assignor OP Unitholder may not transfer all and assignee, (3) the written Pursuant to the AIMCO Operating or any portion of its OP Units to approval of the general partner Partnership Agreement, until the any transferee without the consent which may be withheld in the sole expiration of one year from the of the general partner, which and absolute discretion of the date on which a holder of Preferred consent may be withheld in its sole general partner has been granted, OP Units acquired Preferred OP and absolute discretion. After the (4) the assignor or the assignee Units, subject to certain expiration of one year, such OP pays a transfer fee, (5) the exceptions, such holder of Unitholder has the right to transfer will not result in a Preferred OP Units may not transfer transfer all or any portion of its termination of your partnership for all or any portion of its Pre- OP Units to any person, subject to tax purposes, (6) the general ferred OP Units to any transferee the satisfaction of certain partner has received an opinion without the consent of the general conditions specified in the AIMCO from counsel that such transfer partner, which consent may be Operating Partnership Agreement, does not violate any applicable withheld in its sole and absolute including the general partner's securities law and will not result discretion. After the expiration of right of first refusal. See in the termination of your one year, such holders of Preferred "Description of OP Units -- partnership for tax purposes and OP Units has the right to transfer Transfers and Withdrawals" in the (7) the assignor and assignee have all or any portion of its Preferred accompanying Prospectus. complied with such other conditions OP Units to any person, subject to as set forth in your partner- the satisfaction of
S-68 4306 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ship's agreement of limited certain conditions specified in the After the first anniversary of partnership. AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the There are no redemption rights partner's right of first refusal. right, subject to the terms and associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 4307 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $20,000 for its services as general partner of your partnership and may receive reimbursement for expenses generated in such capacity. The property manager received management fees of $41,083 in 1996, $41,398 in 1997 and $21,568 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-70 4308 YOUR PARTNERSHIP GENERAL Villa Nova Apartments is a Tennessee limited partnership which raised net proceeds of approximately $2,012,500 in 1984 through a private offering. The promoter for the private offering of your partnership was Freeman Properties, Inc. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 45 limited partners of your partnership and a total of 35 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on April 20, 1984 for the purpose of owning and operating a single apartment property located in Indianapolis, Indiana, known as "Villa Nova Apartments." Your partnership's property consists of 126 apartment units. The total rentable square footage of your partnership's property is 107,480 square feet. Your partnership's property had an average occupancy rate of approximately 96.83% in 1996 and 96.83% in 1997. The average annual rent per apartment unit is approximately $6,232. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $41,083, $41,398 and $21,568, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on July 1, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 4309 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,359,299, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $83,835, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE UNAUDITED FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 4310 Below is selected financial information for Villa Nova, Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
VILLA NOVA, LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 62,779 $ 62,988 $ 46,475 $ 35,399 $ 58,330 $ 28,547 $ 82,091 Land & Building.............. 3,520,153 3,470,198 3,492,086 3,440,061 3,389,867 3,346,002 3,324,872 Accumulated Depreciation..... (2,999,938) (2,828,457) (2,914,197) (2,742,716) (2,578,243) (2,420,157) (2,264,276) Other Assets................. 362,784 377,370 360,285 354,113 361,355 359,003 340,122 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 945,778 $ 1,082,099 $ 984,649 $ 1,086,857 $ 1,231,309 $ 1,313,395 $ 1,482,809 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... $ 2,345,040 $ 2,392,160 $ 2,374,717 $ 2,427,264 $ 2,475,420 $ 2,519,551 $ 2,559,993 Other Liabilities............ 78,354 64,841 34,967 27,848 38,542 45,255 106,468 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... $ 2,423,394 $ 2,457,001 $ 2,409,684 $ 2,455,112 $ 2,513,962 $ 2,564,806 $ 2,666,461 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... $(1,477,617) $(1,374,903) $(1,425,035) $(1,368,255) $(1,282,653) $(1,251,411) $(1,183,652) =========== =========== =========== =========== =========== =========== ===========
VILLA NOVA, LIMITED PARTNERSHIP ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue..................... $ 399,314 $ 375,877 $ 786,461 $ 721,219 $ 733,902 $ 688,036 $ 648,411 Other Income....................... 30,230 24,966 48,222 54,749 74,087 59,075 41,122 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. $ 429,544 $ 400,843 $ 834,683 $ 775,968 $ 807,989 $ 747,111 $ 689,533 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 242,823 165,512 386,621 359,373 338,921 314,802 404,530 General & Administrative........... 20,374 19,056 41,437 41,886 40,091 34,808 54,144 Depreciation....................... 85,741 85,741 171,481 164,473 158,086 155,881 174,665 Interest Expense................... 93,683 96,446 220,250 224,549 228,302 232,365 235,166 Property Taxes..................... 39,504 40,735 71,674 71,289 72,552 77,014 73,228 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ $ 482,125 $ 407,490 $ 891,463 $ 861,570 $ 837,952 $ 814,870 $ 941,733 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income......................... $ (52,581) $ (6,647) $ (56,780) $ (85,602) $ (29,963) $ (67,759) $ (252,200) ========== ========== ========== ========== ========== ========== ==========
S-73 4311 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the unaudited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net loss of $52,581 for the six months ended June 30, 1998, compared to net loss of $6,647 for the six months ended June 30, 1997. The decrease in net income of $45,934, or 691.05% was primarily the result of an increase in operating expenses. This is discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $429,544 for the six months ended June 30, 1998, compared to $400,843 for the six months ended June 30, 1997, an increase of $28,701, or 7.16 %. This increase was primarily due to an increase in occupancy. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $242,823 for the six months ended June 30, 1998, compared to $165,512 for the six months ended June 30, 1997, an increase of $77,311 or 46.71% due to exterior painting expenses incurred during the first six months of 1998. Management expenses totaled $21,568 for the six months ended June 30, 1998, compared to $20,186 for the six months ended June 30, 1997, an increase of $1,382, or 6.85 % which can be attributed to the increase in revenues as management fees are calculated as a percentage of revenues. General and Administrative Expenses General and administrative expenses totaled $20,374 for the six months ended June 30, 1998 compared to $19,056 for the six months ended June 30, 1997, an increase of $1,318 or 6.92%. This is primarily due to increased charges related to collection services fees and other various administrative expenses. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $93,683 for the six months ended June 30, 1998, compared to $96,446 for the six months ended June 30, 1997, a decrease of $2,763, or 2.86%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net loss of $56,780 for the year ended December 31, 1997, compared to a net loss of $85,602 for the year ended December 31, 1996. The increase in net income of $28,822, or 33.67% was primarily the result of an increase in rental revenue. Revenues Rental and other property revenues from the partnership's property totaled $834,683 for the year ended December 31, 1997, compared to $775,968 for the year ended December 31, 1996, an increase of $58,715, or S-74 4312 7.57%. This increase can be attributed to an increase in occupancy levels coupled with an increase in rental rates. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $386,621 for the year ended December 31, 1997, compared to $359,373 for the year ended December 31, 1996, an increase of $27,248 or 7.58%. This increase was due to increased costs associated with non-capitalizable property improvements. Management expenses totaled $41,398 for the year ended December 31, 1997, compared to $41,083 for the year ended December 31, 1996, an increase of $315, or 0.77%. General and Administrative Expenses General and administrative expenses totaled $41,437 for the year ended December 31, 1997 compared to $41,886 for the year ended December 31, 1996, a decrease of $449 or 1.07%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $220,250 for the year ended December 31, 1997, compared to $224,549 for the year ended December 31, 1996, a decrease of $4,299, or 1.91%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $(85,062) for the year ended December 31, 1996, compared to $(29,963) for the year ended December 31, 1995. The decrease in net income of $55,099, or 183.89% was primarily the result of a decrease in revenues coupled with an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $775,968 for the year ended December 31, 1996, compared to $807,989 for the year ended December 31, 1995, a decrease of $32,021, or 3.96%. Expenses Operating expenses, consisting of utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $359,373 for the year ended December 31, 1996, compared to $338,921 for the year ended December 31, 1995, an increase of $20,452 or 6.03%. The increase is primarily due to increased maintenance costs. Management expenses totaled $41,083 for the year ended December 31, 1996, compared to $40,399 for the year ended December 31, 1995, an increase of $684, or 1.69%. General and Administrative Expenses General and administrative expenses totaled $41,886 for the year ended December 31, 1996 compared to $40,091 for the year ended December 31, 1995, an increase of $1,795 or 4.48%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $224,549 for the year ended December 31, 1996, compared to $228,302 for the year ended December 31, 1995, a decrease of $3,753, or 1.64%. S-75 4313 Liquidity and Capital Resources As of June 30, 1998, your partnership had $62,779 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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, in damages or otherwise to your partnership or any limited partner for any acts performed by any of them which are reasonably believed by them to be within the scope of the authority conferred on them by your partnership's agreement of limited partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation. 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 owned by AIMCO. See "Conflicts of Interest." The general partner and its affiliate are entitled to indemnification by your partnership for any and all acts performed by them in good faith belief that the act or omission was in the best interests of your partnership and which are reasonably within the scope of the authority conferred upon them by your partnership's agreement of limited partnership or by your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation; provided, however, that such indemnity will be paid out of and only to the extent of partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions Your partnership has not paid any distributions in the last five years. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, or (iii) have any contract, arrangement, S-76 4314 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994............................................ $32,957 1995............................................ $36,505 1996............................................ $37,503 1997............................................ $39,810 1998 (through June 30)..........................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $40,399 1996........................................... $41,083 1997........................................... $41,398 1998 (through June 30)......................... $21,568
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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-77 4315 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. S-78 4316 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Statement of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of June 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Revenues and Expenses -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)............................................... F-3 Condensed Statements of Cash Flows -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)... F-4 Notes to Condensed Financial Statements -- Income Tax Basis..................................................... F-5 Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1997 and 1996 (unaudited).......................................... F-6 Statements of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1997 and 1996 (unaudited)............................. F-7 Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1997 and 1996 (unaudited)...................................... F-8 Notes to Financial Statements -- Income Tax Basis........... F-9 Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1996 and 1995 (unaudited).......................................... F-13 Statements of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1996 and 1995 (unaudited)............................. F-14 Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1996 and 1995 (unaudited).............. F-15 Notes to Financial Statements -- Income Tax Basis........... F-16 Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1995 and 1994 (unaudited).......................................... F-20 Statements of Revenues and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1995 and 1994 (unaudited)............................. F-21 Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1995 and 1994 (unaudited).............. F-22 Notes to the Financial Statements -- Income Tax Basis....... F-23
F-1 4317 VILLA NOVA, LIMITED CONDENSED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 62,779 Receivables and Deposits.................................... 12,395 Restricted Escrows.......................................... 137,170 Syndication Fees............................................ -- Other Assets................................................ 213,219 Investment Property: Land...................................................... $ 157,350 Building and related personal property.................... 3,362,802 ----------- 3,520,152 Less: Accumulated depreciation............................ (2,999,938) 520,214 ----------- ----------- Total Assets...................................... $ 945,777 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ -- Other Accrued Liabilities................................... (86,543) Property taxes payable...................................... -- Tenant security deposits.................................... -- Notes Payable............................................... (2,336,850) Partners' Capital........................................... 1,477,616 ----------- Total Liabilities and Partners' Capital........... $ (945,777) ===========
F-2 4318 VILLA NOVA, LIMITED CONDENSED STATEMENTS OF REVENUES AND EXPENSES -- INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ---------------------- 1998 1997 --------- --------- Revenues: Rental Income............................................. $(399,314) $(375,877) Other Income.............................................. (30,230) (24,966) (Gain) Loss on Disposal of Property....................... -- -- Casualty Gain/Loss........................................ -- -- --------- --------- Total Revenues.................................... (429,544) (400,843) Expenses: Operating Expenses........................................ 242,823 165,512 General and Administrative Expenses....................... 20,374 19,056 Depreciation Expense...................................... 85,741 85,741 Interest Expense.......................................... 93,683 96,446 Property Tax Expense...................................... 39,504 40,735 --------- --------- Total Expenses.................................... 482,125 407,490 (Income) Loss from Operations............................... 52,581 6,647 Extraordinary Gain on Early Extinguishment of Debt.......... -- -- Loss on Sale of Investment Property......................... -- -- Casualty Gain............................................... -- -- --------- --------- Net (Income) Loss................................. $ 52,581 $ 6,647 ========= =========
F-3 4319 VILLA NOVA, LIMITED CONDENSED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------- 1998 1997 -------- -------- Operating Activities: Net Income (loss)......................................... $(52,581) $ (6,647) Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 85,741 85,741 Loss on Casualty event................................. -- -- Extraordinary loss on refinancing...................... -- -- Changes in accounts: Receivables and deposits and other assets............ 528 (20,531) Accounts Payable and accrued expenses................ 51,576 36,994 -------- -------- Net cash provided by (used in) operating activities...................................... 85,264 95,557 -------- -------- Investing Activities: Property improvements and replacements.................... (28,066) (30,137) Property improvements -- NON-CASH......................... -- -- Proceeds from sale of investments......................... -- -- Collections on notes receivable........................... -- -- Net (increase)/decrease in restricted escrows............. (3,027) (2,727) Net insurance proceeds received from casualty events...... -- -- Dividends received........................................ -- -- -------- -------- Net cash provided by (used in) investing activities...................................... (31,093) (32,864) -------- -------- Financing Activities: Payments on mortgage...................................... (37,867) (35,104) Repayment of mortgage..................................... -- -- Prepayment penalties...................................... -- -- Proceeds from refinancing of mortgage..................... -- -- Payment of Loan Costs..................................... -- -- Partners' Distributions................................... -- -- -------- -------- Net cash provided by (used in) financing activities...................................... (37,867) (35,104) -------- -------- Net increase (decrease) in cash and cash equivalents..................................... 16,304 27,589 Cash and cash equivalents at beginning of year.............. 46,475 35,399 -------- -------- Cash and cash equivalents at end of period.................. $ 62,779 $ 62,988 ======== ========
F-4 4320 VILLA NOVA, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS -- INCOME TAX BASIS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Villa Nova, Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with the accounting basis for federal income tax reporting. Accordingly, they do not include all the information and footnotes required by the accounting basis for federal income tax reporting for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 4321 VILLA NOVA, LIMITED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED) ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 46,475 $ 35,399 Receivables and deposits.................................... 31,975 26,319 Restricted escrows (Note B)................................. 134,143 128,630 Other assets................................................ 194,167 199,164 Investment properties (Note C): Land...................................................... 157,350 157,350 Buildings and related personal property................... 3,334,736 3,282,711 ----------- ----------- 3,492,086 3,440,061 Less accumulated depreciation............................. (2,914,197) (2,742,716) ----------- ----------- 577,889 697,345 ----------- ----------- $ 984,649 $ 1,086,857 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 6,002 $ 14 Payable to affiliate (Note D)............................. 1,696 1,696 Tenant security deposit liabilities....................... 12,733 12,055 Other liabilities......................................... 14,536 14,083 Mortgage notes payable (Note C)........................... 2,374,717 2,427,264 Partners' deficit........................................... (1,425,035) (1,368,255) ----------- ----------- $ 984,649 $ 1,086,857 =========== ===========
See accompanying notes to financial statements -- income tax basis. F-6 4322 VILLA NOVA, LIMITED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED)
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 786,461 $ 721,219 Other income.............................................. 48,222 54,749 ----------- ----------- Total revenues.................................... 834,683 775,968 ----------- ----------- Expenses: Operating (Note D)........................................ 386,621 359,373 General and administrative (Note D)....................... 41,437 41,886 Depreciation.............................................. 171,481 164,473 Interest.................................................. 220,250 224,549 Property taxes............................................ 71,674 71,289 ----------- ----------- Total expenses.................................... 891,463 861,570 ----------- ----------- Net loss.......................................... (56,780) (85,602) Partners' deficit at beginning of year...................... (1,368,255) (1,282,653) ----------- ----------- Partners' deficit at end of year............................ $(1,425,035) $(1,368,255) =========== ===========
See accompanying notes to financial statements -- income tax basis. F-7 4323 VILLA NOVA, LIMITED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED)
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Cash flows from operating activities: Net loss.................................................. $(56,780) $(85,602) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 171,481 164,473 Amortization of discounts and loan costs............... 28,714 27,894 Change in accounts: Receivables and deposits............................. (5,656) 14,539 Other assets......................................... (4,701) -- Accounts payable and payable to affiliate............ 5,988 (5,660) Tenant security deposit liabilities.................. 678 (2,243) Other liabilities.................................... 453 (2,791) -------- -------- Net cash provided by operating activities......... 140,177 110,610 -------- -------- Cash flows from investing activities: Property improvements and replacements.................... (52,025) (50,194) Deposits to restricted escrows............................ (5,513) (2,870) -------- -------- Net cash used in investing activities............. (57,538) (53,064) -------- -------- Cash flows from financing activities: Payments on mortgage notes payable........................ (71,563) (66,342) -------- -------- Net cash used in financing activities............. (71,563) (66,342) -------- -------- Net increase (decrease) in cash and cash equivalents........ 11,076 (8,796) Cash and cash equivalents at beginning of year.............. 35,399 44,195 -------- -------- Cash and cash equivalents at end of year.................... $ 46,475 $ 35,399 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $191,536 $196,758 ======== ========
See accompanying notes to financial statements -- income tax basis. F-8 4324 VILLA NOVA, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 AND 1996 (UNAUDITED) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Villa Nova, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated April 23, 1984. The Partnership owns and operates a 126 unit multi-family housing complex, Villa Nova Apartments in Indianapolis, Indiana. The Partnership's Managing General Partner is Davidson Properties, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Basis of Accounting The financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, and (3) syndication costs are not amortized. On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. Depreciation Depreciation is provided for in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Under generally accepted accounting principles, the cost of depreciable assets would be allocated systematically over their estimated useful lives. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $47,739 and $57,437, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Also included in other assets are syndication costs of $141,727 which are not amortized. F-9 4325 VILLA NOVA, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Reclassification Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. $ 134,143 $ 128,630 ========== ==========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $21,394, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $2,397,167 $2,468,730 Second mortgage note payable in interest only monthly installments of $531, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 83,835 83,835 ---------- ---------- Principal balance at year end............................... 2,481,002 2,552,565 Less unamortized discount................................... (106,285) (125,301) ---------- ---------- $2,374,717 $2,427,264 ========== ==========
Scheduled principal payments to the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 77,196 1999..................................................... 83,271 2000..................................................... 89,825 2001..................................................... 96,895 2002..................................................... 2,133,815 ---------- $2,481,002 ==========
F-10 4326 VILLA NOVA, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payment to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- ------- ------- Property management fee.................................. $41,398 $41,083 Partnership administration fee........................... $20,004 $20,004 Reimbursement for services of affiliates................. $17,998 $15,803 Payable to affiliate -- property management fee.......... $ 1,696 $ 1,696 Construction fee......................................... $ 112 $ --
F-11 4327 VILLA NOVA, LIMITED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 AND 1995 (UNAUDITED) F-12 4328 VILLA NOVA, LIMITED STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED) ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 35,399 $ 44,195 Restricted -- tenant security deposits.................... 11,695 14,135 Accounts receivable......................................... 291 8,340 Escrow for taxes............................................ 14,333 18,383 Restricted escrows (Note B)................................. 128,630 125,760 Other assets................................................ 199,164 208,872 Investment properties (Note C): Land...................................................... 157,350 157,350 Buildings and related personal property................... 3,282,711 2,232,517 ----------- ----------- 3,440,061 3,389,867 Less accumulated depreciation............................. (2,742,716) (2,578,243) ----------- ----------- 697,345 811,624 ----------- ----------- $ 1,086,857 $ 1,231,309 =========== =========== LIABILITIES AND PARTNERS' DEFICITS Liabilities: Accounts payable.......................................... $ 14 $ 5,674 Payable to affiliate (Note D)............................. 1,696 1,696 Tenant security deposits.................................. 12,055 14,298 Other liabilities......................................... 14,083 16,874 Mortgage notes payable (Note C)........................... 2,427,264 2,475,420 Partners' deficit........................................... (1,368,255) (1,282,653) ----------- ----------- $ 1,086,857 $ 1,231,309 =========== ===========
See accompanying notes to financial statements -- income tax basis. F-13 4329 VILLA NOVA, LIMITED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED)
YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 721,219 $ 733,902 Other income.............................................. 54,749 74,087 ----------- ----------- Total revenues.................................... 775,968 807,989 ----------- ----------- Expenses: Operating (Note D)........................................ 246,913 255,216 General and administrative (Note D)....................... 41,886 40,091 Maintenance............................................... 112,460 83,705 Depreciation.............................................. 164,473 158,086 Interest.................................................. 224,549 228,302 Property taxes............................................ 71,289 72,552 ----------- ----------- Total expenses.................................... 861,570 837,952 ----------- ----------- Net Loss.................................................... (85,602) (29,963) Distributions to partners................................... -- (1,279) Partners' deficit at beginning of year...................... (1,282,653) (1,251,411) ----------- ----------- Partners' deficit at end of year............................ $(1,368,255) $(1,282,653) =========== ===========
See accompanying notes to financial statements -- income tax basis. F-14 4330 VILLA NOVA, LIMITED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED)
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- ---------- Cash flows from operating activities: Net loss.................................................. $(85,602) $(29,963) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 164,473 158,086 Amortization of discounts and loan costs............... 27,894 27,078 Change in accounts: Restricted cash...................................... 2,440 (1,418) Accounts receivable.................................. 8,049 (8,340) Escrow for taxes..................................... 4,050 24,742 Accounts payable and payable to affiliate............ (5,660) (9,380) Tenant security deposit liabilities.................. (2,243) 1,581 Other liabilities.................................... (2,791) 1,086 -------- -------- Net cash provided by operating activities......... 110,610 163,472 -------- -------- Cash flows from investing activities: Property improvements and replacements.................... (50,194) (43,865) Deposits to restricted escrows............................ (2,870) (35,817) Receipts from restricted escrows.......................... -- 7,355 -------- -------- Net cash used in investing activities............. (53,064) (72,327) -------- -------- Cash flows from financing activities: Payments on mortgage notes payable........................ (66,342) (61,501) Distribution to partners.................................. -- (1,279) -------- -------- Net cash used in financing activities............. (66,342) (62,780) -------- -------- Net (decrease) increase in cash and cash equivalents..................................... (8,796) 28,365 Cash and cash equivalents at beginning of year.............. 44,195 15,830 -------- -------- Cash and cash equivalents at end of year.................... $ 35,399 $ 44,195 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $196,758 $201,600 ======== ========
See accompanying notes to financial statements -- income tax basis. F-15 4331 VILLA NOVA, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 AND 1995 (UNAUDITED) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Villa Nova, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated April 23, 1984. The Partnership owns and operates a 126 unit multi-family housing complex, Villa Nova Apartments, in Indianapolis, Indiana. The Partnership's Managing General Partner is Davidson Properties, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Basis of Accounting The financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, and (3) syndication costs are not amortized. On the basis of counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. Depreciation Depreciation is provided for in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Under generally accepted accounting principles, the cost of depreciable assets would be allocated systematically over their estimated useful lives. Other Assets Other assets at December 31, 1996 and 1995 include deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Also included in other assets are syndication costs of $141,727 which are not amortized. F-16 4332 VILLA NOVA, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. Reclassification Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. $ 128,630 $ 125,760 ========== ==========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $21,394, including interest at 7.60%, due November 2002; collateralized by land and buildings...... $2,468,730 $2,535,072 Second mortgage note payable in interest only monthly installments of $531, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings................................. 83,835 83,835 ---------- ---------- Principal balance at year end............... 2,552,565 2,618,907 Less unamortized discount................... (125,301) (143,487) ---------- ---------- $2,427,264 $2,475,420 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997............................................. $ 71,563 1998............................................. 77,196 1999............................................. 83,271 2000............................................. 89,825 2001............................................. 96,895 Thereafter....................................... 2,133,815 ---------- $2,552,565 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the F-17 4333 VILLA NOVA, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity of U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- ------- ------- Property management fee.......................... $41,083 $40,399 Partnership administration fee................... $20,004 $20,004 Reimbursement for services of affiliates......... $15,803 $14,805 Payable to affiliate -- property management fee............................................ $ 1,696 $ 1,696
F-18 4334 VILLA NOVA, LIMITED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1995 AND 1994 (UNAUDITED) F-19 4335 VILLA NOVA, LIMITED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED) ASSETS
DECEMBER 31, -------------------------- 1995 1994 ----------- ----------- Cash and cash equivalents Unrestricted.............................................. $ 44,195 $ 15,830 Restricted -- tenant security deposits.................... 14,135 12,717 Accounts receivable......................................... 8,340 -- Escrow for taxes............................................ 18,383 43,125 Restricted escrows (Note B)................................. 125,760 97,298 Other assets................................................ 208,872 218,580 Investment properties (Note C): Land...................................................... 157,350 157,350 Buildings and related personal property................... 3,232,517 3,188,652 ----------- ----------- 3,389,867 3,346,002 Less accumulated depreciation............................. (2,578,243) (2,420,157) ----------- ----------- 811,624 925,845 ----------- ----------- $ 1,231,309 $ 1,313,395 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 5,674 $ 16,750 Payable to affiliate (Note D)............................. 1,696 -- Tenant security deposits.................................. 14,298 12,717 Other liabilities......................................... 16,874 15,788 Mortgage notes payable (Note C)........................... 2,475,420 2,519,551 Partners' deficit........................................... (1,282,653) (1,251,411) ----------- ----------- $ 1,231,309 $ 1,313,395 =========== ===========
See accompanying notes to financial statements -- income tax basis. F-20 4336 VILLA NOVA, LIMITED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED)
YEARS ENDED DECEMBER 31, -------------------------- 1995 1994 ----------- ----------- Revenues: Rental income............................................. $ 733,902 $ 688,036 Other income.............................................. 74,087 59,075 ----------- ----------- Total revenues.................................... 807,989 747,111 ----------- ----------- Expenses: Operating................................................. 214,817 204,018 General and administrative (Note D)....................... 40,091 34,808 Property management fees (Note D)......................... 40,399 36,841 Maintenance............................................... 83,705 74,943 Depreciation.............................................. 158,086 155,881 Interest.................................................. 228,302 232,365 Property taxes............................................ 72,552 77,014 ----------- ----------- Total expenses.................................... 837,952 814,870 ----------- ----------- Net loss.................................................... (29,963) (67,759) Distributions to partners................................... (1,279) -- Partners' deficit at beginning of year...................... (1,251,411) (1,183,652) ----------- ----------- Partners' deficit at end of year............................ $(1,282,653) $(1,251,411) =========== ===========
See accompanying notes to financial statements -- income tax basis. F-21 4337 VILLA NOVA, LIMITED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED)
YEAR ENDED DECEMBER 31, ------------------------ 1995 1994 ---------- ---------- Cash flows from operating activities: Net loss.................................................. $(29,963) $(67,759) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 158,086 155,881 Amortization of discounts and loan costs............... 27,078 26,280 Change in accounts: Restricted cash...................................... (1,418) (109) Accounts receivable.................................. (8,340) -- Escrow for taxes..................................... 24,742 (1,271) Accounts payable and payable to affiliate............ (9,380) (57,880) Tenant security deposit liabilities.................. 1,581 109 Other liabilities.................................... 1,086 (3,442) -------- -------- Net cash provided by operating activities......... 163,472 51,809 -------- -------- Cash flows from investing activities: Property improvements and replacements.................... (43,865) (21,130) Deposits to restricted escrows............................ (35,817) (28,804) Receipts from restricted escrows.......................... 7,355 1,486 -------- -------- Net cash used in investing activities............. (72,327) (48,448) -------- -------- Cash flows from financing activities: Payments on mortgage notes payable........................ (61,501) (57,014) Distributions to partners................................. (1,279) -- -------- -------- Net cash used in financing activities............. (62,780 (57,014) -------- -------- Net increase (decrease) in cash............................. 28,365 (53,653) Cash and cash equivalents at beginning of year.............. 15,830 69,483 -------- -------- Cash and cash equivalents at end of year.................... $ 44,195 $ 15,830 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $201,600 $206,085 ======== ========
See accompanying notes to financial statements -- income tax basis. F-22 4338 VILLA NOVA, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1995 AND 1994 (UNAUDITED) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Villa Nova, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated April 23, 1984. The Partnership owns and operates a 126 unit multi-family housing complex, Villa Nova Apartments, in Indianapolis, Indiana. The Partnership's Managing General Partner is Davidson Properties, an affiliate of Insignia Financial Group ("Insignia"). The property is managed by Insignia Management Group, an affiliate of Insignia. Basis of Accounting The financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, and (3) syndication costs are not amortized. On the basis of counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. Depreciation Depreciation is provided for in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Under generally accepted accounting principles, the cost of depreciable assets would be allocated systematically over their estimated useful lives. Other Assets Other assets at December 31, 1995 and 1994 include deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Also included in other assets are $141,727 of syndication costs which are not amortized. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers cash and all highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. F-23 4339 VILLA NOVA, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Reclassifications Certain 1994 amounts have been reclassified to conform to the 1995 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1995 and 1994 consist of the following:
1995 1994 -------- ------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The capital improvements were completed in calendar year 1995...................................................... $ -- $ 7,250 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 125,760 90,048 -------- ------- $125,760 $97,298 ======== =======
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1995 and 1994 consist of the following:
1995 1994 ---------- ---------- First mortgage note payable in monthly installments of $21,394, including interest at 7.60%, due November 2002; collateralized by land and buildings...... $2,535,072 $2,596,573 Second mortgage note payable in interest only monthly installments of $531, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings................................. 83,835 83,835 ---------- ---------- Principal balance at year end............... 2,618,907 2,680,408 Less unamortized discount................... (143,487) (160,857) ---------- ---------- $2,475,420 $2,519,551 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1995 are as follows: 1996............................................. $ 66,342 1997............................................. 71,563 1998............................................. 77,196 1999............................................. 83,271 2000............................................. 89,825 Thereafter....................................... 2,230,710 ---------- $2,618,907 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the F-24 4340 VILLA NOVA, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1995 1994 TYPE OF TRANSACTION AMOUNT AMOUNT - ------------------- ------- ------- Property management fee.......................... $40,399 $36,841 Partnership administration fee................... $20,004 $20,004 Reimbursement for services of affiliates......... $14,805 $12,953 Payable to affiliate -- property management fee............................................ $ 1,696 $ --
F-25 4341 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 4342 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 4343 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 September , 1998 A-3 4344 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998 AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF WALKER SPRINGS, LIMITED 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 4345 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 Our 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 Walker Springs, Limited........................... 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-29 Expected Benefits of the Offer............... S-30 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-35 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-41 Accounting Treatment......................... S-42
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-45 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-61 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71 YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72
i 4346
PAGE ---- Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-73 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions and Transfers of Units......... S-77
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 4347 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 Walker Springs, Limited. 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 4348 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)............................... $ $ $ -- $ -- Third Quarter.......................... 41 30 15/16 -- -- 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 4349 - 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. Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 principle 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: WHAT DISTRIBUTIONS WILL I RECEIVE IF I EXCHANGE MY UNITS FOR TAX-DEFERRAL % PREFERRED OP UNITS OR TAX-DEFERRAL COMMON OP UNITS? A: Your partnership paid distributions of $ 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 distributions of $ 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 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 4350 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 4351 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 100% of 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? 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: 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 4352 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 4353 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. 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. 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 5 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. 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 S-7 4354 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. 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. Although your partnership did not make any distributions in 1998, it might make distributions in the future. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 4355 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 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 S-9 4356 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 4357 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, 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. 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 S-11 4358 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 1.01% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least % of the units of your partnership. In the absence of such consent, your only 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 S-12 4359 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. Your partnership has not paid any distributions on your units since the inception of your partnership. 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 Preferred Partnership 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). Your partnership has not paid any distributions on your units since the inception of your partnership. - 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 4360 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 4361 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 legal fees and expenses in connection therewith. We will 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 S-15 4362 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 4363 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 4364 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 is not subject to such limitations. 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $6,000 annually and may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $46,478 in 1996, $47,212 in 1997 and $23,711 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. S-18 4365 YOUR PARTNERSHIP Your Partnership and its Property. Walker Springs, Limited is a Tennessee limited partnership which was formed on May 13, 1982 for the purpose of owning and operating a single apartment property located in Knoxville, Tennessee, known as "Walker Springs Apartments". In 1982, it completed a private placement of units that raised net proceeds of approximately $2,395,000. Walker Springs Apartments consists of 168 apartment units. Your partnership has no employees. Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on July 1, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,540,759, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $90,284 on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 4366 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, 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 4367
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 4368 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 the 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 4369
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 4370 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 4371 SUMMARY FINANCIAL INFORMATION OF WALKER SPRINGS, LIMITED The summary financial information of Walker Springs, Limited for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Walker Springs, Limited for the years ended December 31, 1997 and 1996, 1995, 1994 and 1993 is based on 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 of Your Partnership" included herein. See "Index to Financial Statements." WALKER SPRINGS, LIMITED
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... 463,906 448,500 950,217 950,941 962,014 929,663 887,429 Net Income/(Loss)............ (15,493) 29,107 (4,663) (66,751) (38,336) (48,196) (56,553) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... 753,780 802,097 773,142 810,961 921,672 976,490 966,527 Total Assets................. 1,252,160 1,332,921 1,329,821 1,373,392 1,486,476 1,575,194 1,660,792 Mortgage Notes Payable, including Accrued Interest................... 2,516,867 2,578,110 2,557,650 2,614,245 2,666,110 2,713,640 2,757,197 Partners' Capital/(Deficit).......... (1,313,608) (1,264,347) (1,298,116) (1,293,453) (1,226,882) (1,188,546) (1,140,350)
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 YOUR 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 $Not Available $Not Available
S-25 4372 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. 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 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 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, 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 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. S-26 4373 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 Code. 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 therefore 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 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. 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 S-27 4374 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, 1998 were $ (equivalent to $ on an annual 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 OP Common Units, that you would receive in an 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 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. 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. S-28 4375 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently own a 1.01% limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 4376 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least % of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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. S-30 4377 - 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. Your Partnership has not paid any distributions on your units since the inception of your partnership. 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 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). Your Partnership has not paid any distributions on your units since the inception of your partnership. 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 4378 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 4379 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 4380 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. 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. S-34 4381 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." 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. 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. S-35 4382 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, (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 9:00 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 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, Denver, Colorado time. S-36 4383 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 4384 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. 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, which change, 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 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 S-38 4385 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 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 S-39 4386 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 4387 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. 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. 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-41 4388 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-42 4389 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 payment. 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 OP Units and any such S-43 4390 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-44 4391 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-45 4392 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-46 4393 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-47 4394 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-48 4395 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-49 4396 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 4397 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-51 4398 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 4399 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 4400 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 4401 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 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, a third party expert, 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 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, 1998 were $ (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-55 4402 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-56 4403 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. 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-57 4404 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-58 4405 performed a site inspection 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 September 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 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 property was 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 S-59 4406 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. S-60 4407 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 $9,000 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-61 4408 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 Tennessee law for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Walker Springs Apartments. 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 July 1, 2015. Agreement") or as provided by law. See "Description of 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 and operate The purpose of the AIMCO Operating Partnership is to your partnership's property. Subject to restrictions conduct any business that may be lawfully conducted by contained in your partnership's agreement of limited a limited partnership organized pursuant to the partnership, your partnership may perform all acts Delaware Revised Uniform Limited Partnership Act (as necessary or appropriate in connection therewith and amended from time to time, or any successor to such reasonably related thereto, including acquiring statute) (the "Delaware Limited Partnership Act"), additional real or personal property, borrowing money provided that such business is to be conducted in a 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-62 4409 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 units for cash and time to the limited partners and to other persons, and notes 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. 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 acquire property or funds or other assets to its subsidiaries or other services from, and have other transactions with persons persons in which it has an equity investment, and such who are partners or who are affiliates of partners. Any persons may borrow funds from the AIMCO Operating and all compensation paid to such persons in connection Partnership, on terms and conditions established in the with services performed for your partnership must be sole and absolute discretion of the general partner. To commensurate with that which would be paid to an the extent consistent with the business purpose of the independent person for similar services and all AIMCO Operating Partnership and the permitted agreements must be in writing. Your partnership may not activities of the general partner, the AIMCO Operating make loans to any partners but the general partner may Partnership may transfer assets to joint ventures, make loans to your partnership; provided that the limited liability companies, partnerships, interest and fees received by the general partner in corporations, business trusts or other business connection with such loans are not in excess of the entities in which it is or thereby becomes a amounts which would be charged by an unrelated bank and participant upon such terms and subject to such the general partner does not receive a finder's or conditions consistent with the AIMCO Operating Part- placement fee or commission. 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 your partnership business, whether full power and authority to borrow money on behalf of secured or unsecured. the AIMCO Operating Partnership. The AIMCO Operating 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.
S-63 4410 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 the limited partners to receive, for any with a statement of the purpose of such demand and at proper purpose, the name and address of each limited such OP Unitholder's own expense, to obtain a current partner and the number of units owned by each limited list of the name and last known business, residence or partners. Your partnership furnishes such information mailing address of the general partner and each other to any limited partner requesting the same in writing, OP Unitholder. upon payment of all costs and expenses of your partnership in connection with the preparation and forwarding of such information.
Management Control The overall management and control of your partnership All management powers over the business and affairs of business, activities and operations is vested solely in the AIMCO Operating Partnership are vested in AIMCO-GP, the general partner. The general partner has full, Inc., which is the general partner. No OP Unitholder exclusive and complete authority and discretion in the has any right to participate in or exercise control or management and control of the business, activities and management power over the business and affairs of the operations of your partnership for the purposes set AIMCO Operating Partnership. The OP Unitholders have forth in your partnership's agreement of limited the right to vote on certain matters described under partnership and makes all decisions affecting the "Comparison of Ownership of Your Units and AIMCO OP conduct of the business of your partnership. The Units -- Voting Rights" below. The general partner may general partner possesses and may enjoy and exercise not be removed by the OP Unitholders with or without all of the rights and powers of general partner as more cause. particularly provided under applicable law, except to the extent any such rights may be limited or restricted In addition to the powers granted a general partner of by the express provisions of your partnership's a limited partnership under applicable law or that are agreement of limited partnership. Limited partners may granted to the general partner under any other not take part in the management of the business, provision of the AIMCO Operating Partnership Agreement, affairs and operations of your partnership, transact the general partner, subject to the other provisions of any business for your partnership, have any power, the AIMCO Operating Partnership Agreement, has full right or authority to enter into any agreement, execute power and authority to do all things deemed necessary or sign documents for, make representation on behalf of or desirable by it to conduct the business of the AIMCO nor to otherwise act so as to bind your partnership in Operating Partnership, to exercise all powers of the any manner. 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, in 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 by any of them which are reasonably believed judgment or mistakes of fact or law of any act or by them to be within the scope of the authority omission if the general partner acted in good faith. conferred on them by your partnership's agreement of The AIMCO Operating Partnership Agreement provides for limited partnership, excepting only acts of malfea- indemnification of AIMCO, or any director or officer of sance, gross negligence or actual misrepresentation. In AIMCO (in its capacity as the previous general partner addition, the general partner and its affiliates are of the AIMCO Operating Partnership), the general entitled to indemnification by your partnership for any partner, any officer or director of general partner or and all acts performed by them which are reasonably the AIMCO Operating Partnership and such other persons within the scope of the authority conferred upon them as the general partner may designate from and against by your partnership's agreement of limited partnership all losses, claims, damages, liabilities, joint or or by your partnership, excepting only acts of several, expenses (including legal fees), fines, malfeasance, gross negligence or actual settlements and other amounts incurred in connection misrepresentation; provided, however, that such with any actions relating to the operations of the indemnity will be paid out of and only to the extent of AIMCO Operating Partnership, as set forth in the AIMCO partnership assets. Operating Partnership Agreement. The Delaware Limited Partnership Act provides that subject to the standards and restrictions, if any, set forth in its
S-64 4411 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 owning 75% of the has exclusive management power over the business and outstanding units may remove the general partner for affairs of the AIMCO Operating Partnership. The general cause. The general partner may not transfer, assign, partner may not be removed as general partner of the sell, withdraw or otherwise dispose of its interest AIMCO Operating Partnership by the OP Unitholders with unless it obtains the prior written consent of those or without cause. Under the AIMCO Operating Partnership persons owning more than 50% of the units and satisfies Agreement, the general partner may, in its sole other conditions set forth in your partnership's discretion, prevent a transferee of an OP Unit from agreement of limited partnership. Such consent is also becoming a substituted limited partner pursuant to the necessary for the approval of a new general partner. A AIMCO Operating Partnership Agreement. The general limited partner may not transfer his interests without partner may exercise this right of approval to deter, the written consent of the general partner which may be delay or hamper attempts by persons to acquire a withheld at the sole discretion of the general partner. 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 to change the name in the AIMCO Operating Partnership Agreement, whereby and location of the principal place of business of your the general partner may, without the consent of the OP partnership, change the name or the residence of a Unitholders, amend the AIMCO Operating Partnership partner, substitute a limited partner, correct an error Agreement, amendments to the AIMCO Operating in your partnership's agreement of limited part- Partnership Agreement require the consent of the nership and as required by law. Amendments of specified holders of a majority of the outstanding Common OP provisions of your partnership's agreement of limited Units, excluding AIMCO and certain other limited partnership may be made only with the prior written exclusions (a "Majority in Interest"). Amendments to consent of all partners. Other amendments must be the AIMCO Operating Partnership Agreement may be approved by the limited partners owning 75% of the proposed by the general partner or by holders of a outstanding units. Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives $6,000 annually and may receive other fees for capacity as general partner of the AIMCO Operating additional services. Moreover, the general partner or Partnership. In addition, the AIMCO Operating Part- certain affiliates may be entitled to compensation for nership is responsible for all expenses incurred additional services rendered. 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-65 4412 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, limited partners are not subject to negligence, no OP Unitholder has personal liability for assessment nor personally liable for any of the debts the AIMCO Operating Partnership's debts and or obligations of your partnership or any of losses of obligations, and liability of the OP Unitholders for your partnership beyond its obligations to contribute the AIMCO Operating Partnership's debts and obligations to the capital of your partnership as specified in your is generally limited to the amount of their invest- partnership's agreement of limited partnership and as ment in the AIMCO Operating Partnership. However, the otherwise provided by law. 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 manage and partnership agreement, Delaware law generally requires control the affairs of your partnership to the best of a general partner of a Delaware limited partnership to its ability and must exercise good faith in carrying adhere to fiduciary duty standards under which it owes out the business of your partnership as set forth in its limited partners the highest duties of good faith, your partnership's agreement of limited partnership. fairness and loyalty and which generally prohibit such The general partner must devote such time and attention general partner from taking any action or engaging in to the business, affairs and operations of your any transaction as to which it has a conflict of partnership as may be necessary for the proper interest. The AIMCO Operating Partnership Agreement performance of their duties. However, the general expressly authorizes the general partner to enter into, partner may engage in or hold interests in other on behalf of the AIMCO Operating Partnership, a right business ventures of every kind and description for of first opportunity arrangement and other conflict their own account including, without limitation, avoidance agreements with various affiliates of the ventures such as those undertaken by your partnership AIMCO Operating Partnership and the general partner, on and your partnership and the partners will have no such terms as the general partner, in its sole and rights in and to such independent business ventures or absolute discretion, believes are advisable. The AIMCO the income and profits derived therefrom. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-66 4413 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 75% of the outstanding units, the the holders of the Preferred OP respect to certain limited matters limited partners may remove the Units will have the same voting such as certain amendments and general partner for cause and amend rights as holders of the Common OP termination of the AIMCO Operating your partnership's agreement of Units. See "Description of OP Partnership Agreement and certain limited partnership, subject to Units" in the accompanying transactions such as the certain limitations which require Prospectus. So long as any institution of bankruptcy the approval of all of the limited Preferred OP Units are outstand- proceedings, an assignment for the partners in order to amend of ing, in addition to any other vote benefit of creditors and certain certain provisions of your or consent of partners required by transfers by the general partner of partnership's agreement of limited law or by the AIMCO Operating its interest in the AIMCO Operating partnership. The Partnership Agree- Part-
S-67 4414 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS consent of the limited partners ment, the affirmative vote or nership or the admission of a owning a majority of the consent of holders of at least 50% successor general partner. outstanding units are necessary to of the outstanding Preferred OP admit a new general partner. In Units will be necessary for Under the AIMCO Operating Partner- order for your partnership to effecting any amendment of any of ship Agreement, the general partner dissolve prior to the expiation of the provisions of the Partnership has the power to effect the its term all limited partners must Unit Designation of the Preferred acquisition, sale, transfer, consent. OP Units that materially and exchange or other disposition of adversely affects the rights or any assets of the AIMCO Operating The general partner may cause the preferences of the holders of the Partnership (including, but not dissolution of your partnership by Preferred OP Units. The creation or limited to, the exercise or grant retiring unless the remaining issuance of any class or series of of any conversion, option, general partner continues your partnership units, including, privilege or subscription right or partnership or, if there is no without limitation, any partner- any other right available in remaining general partner, the ship units that may have rights connection with any assets at any limited partners owning more the senior or superior to the Preferred time held by the AIMCO Operating 50% of the then outstanding units OP Units, shall not be deemed to Partnership) or the merger, elect a new general partner who materially adversely affect the consolidation, reorganization or decides to continue your partner- rights or preferences of the other combination of the AIMCO ship with the approval of the holders of Preferred OP Units. With Operating Partnership with or into limited partners owning more than respect to the exercise of the another entity, all without the 50% of the then outstanding units. 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- Your partnership may, but is not $ per Preferred OP Unit; tribute quarterly all, or such obligated to, make current provided, however, that at any time portion as the general partner may distributions out of its cash funds and from time to time on or after in its sole and absolute discretion as the general partner may, in its the fifth anniversary of the issue determine, of Available Cash (as discretion, determine. The date of the Preferred OP Units, the defined in the AIMCO Operating distributions payable to the AIMCO Operating Partnership may Partnership Agreement) generated by partners are not fixed in amount adjust the annual distribution rate the AIMCO Operating Partnership and depend upon the operating on the Preferred OP Units to the during such quarter to the general 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. Your of five years, and (ii) the annual established by the general partner partnership has not made dividend rate on the most recently with respect to such quarter, in distributions in the past and is issued AIMCO non-convertible accordance with their respective not projected to made distributions preferred stock which ranks on a interests in the AIMCO Operating in 1998. parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-68 4415 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 and be Preferred OP Units and the OP Units. The AIMCO Operating Part- substituted as a limited partner by Preferred OP Units are not listed nership Agreement restricts the such person if: (1) the interest on any securities exchange. The transferability of the OP Units. being acquired by the assignee Preferred OP Units are subject to Until the expiration of one year consists of an integral multiple of restrictions on transfer as set from the date on which an OP half units, (2) a written forth in the AIMCO Operating Unitholder acquired OP Units, assignment has been duly executed Partnership Agreement. subject to certain exceptions, such and acknowledged by the assignor OP Unitholder may not transfer all and assignee, (3) the written Pursuant to the AIMCO Operating or any portion of its OP Units to approval of the general partner Partnership Agreement, until the any transferee without the consent which may be withheld in the sole expiration of one year from the of the general partner, which and absolute discretion of the date on which a holder of Preferred consent may be withheld in its sole general partner has been granted, OP Units acquired Preferred OP and absolute discretion. After the (4) the assignor or the assignee Units, subject to certain expiration of one year, such OP pays a transfer fee, (5) the exceptions, such holder of Unitholder has the right to transfer will not result in a Preferred OP Units may not transfer transfer all or any portion of its termination of your partnership for all or any portion of its Pre- OP Units to any person, subject to tax purposes and (6) the assignor ferred OP Units to any transferee the satisfaction of certain and assignee have complied with without the consent of the general conditions specified in the AIMCO such other conditions as set forth partner, which consent may be Operating Partnership Agreement, in your partnership's agreement of withheld in its sole and absolute including the general partner's limited partnership. discretion. After the expiration of right of first refusal. See There are no redemption rights one year, such holders of Preferred "Description of OP Units -- associated with your 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
S-69 4416 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS certain conditions specified in the After the first anniversary of AIMCO Operating Partnership Agree- becoming a holder of Common OP ment, including the general Units, an OP Unitholder has the partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-70 4417 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $6,000 annually and may receive reimbursement for expenses generated in that capacity. The property manager received management fees of 46,478 in 1996, 47,212 in 1997 and 23,711 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's 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'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 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-71 4418 YOUR PARTNERSHIP GENERAL Walker Springs, Limited is a Tennessee limited partnership which raised net proceeds of approximately $2,395,000 in 1982 through a private offering. The promoter for the private offering of your partnership was Freeman Properties, Inc. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 63 limited partners of your partnership and a total of 49.5 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 1, 1982 for the purpose of owning and operating a single apartment property located in Knoxville, Tennessee, known as "Walker Springs Apartments." Your partnership's property consists of 168 apartment units. The total rentable square footage of your partnership's property is 176,800 square feet. Your partnership's property had an average occupancy rate of approximately 94.05% in 1996 and 94.05% in 1997. The average annual rent per apartment unit is approximately $5,356. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $46,478, $47,212 and $23,711, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on July 1, 2015 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-72 4419 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,540,759, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $90,284 on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 4420 Below is selected financial information for Walker Springs, Limited taken from the financial statements described above. See "Index to Financial Statements."
WALKER SPRINGS, LIMITED ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... 131,607 111,966 188,313 133,047 89,112 102,655 208,712 Land & Building.............. 4,560,213 4,487,492 4,519,056 4,435,836 4,340,819 4,194,536 3,990,464 Accumulated Depreciation..... (3,806,434) (3,685,395) (3,745,914) (3,624,875) (3,419,147) (3,218,046) (3,023,937) Other Assets................. 366,773 418,858 368,366 429,384 475,692 496,049 485,553 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ 1,252,160 1,332,921 1,329,821 1,373,392 1,486,476 1,575,194 1,660,792 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... 2,516,867 2,578,110 2,557,650 2,614,245 2,666,110 2,713,640 2,757,197 Other Liabilities............ 48,900 19,157 70,287 52,600 47,248 50,100 43,945 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 2,565,767 2,597,267 2,627,937 2,666,845 2,713,358 2,763,740 2,801,142 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... (1,313,608) (1,264,347) (1,298,116) (1,293,453) (1,226,882) (1,188,546) (1,140,350) =========== =========== =========== =========== =========== =========== ===========
WALKER SPRINGS, LIMITED ------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------- -------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- -------- ---------- ---------- -------- -------- STATEMENT OF OPERATIONS Rental Revenue............................. 436,393 421,693 901,201 877,481 909,495 861,110 836,041 Other Income............................... 27,513 26,807 49,016 73,460 52,519 68,553 51,388 -------- -------- -------- ---------- ---------- -------- -------- Total Revenue..................... 463,906 448,500 950,217 950,941 962,014 929,663 887,429 -------- -------- -------- ---------- ---------- -------- -------- Operating Expenses......................... 277,235 212,675 507,200 479,494 464,618 445,154 432,253 General & Administrative................... 17,287 13,968 30,488 31,692 33,657 50,219 44,734 Depreciation............................... 60,520 60,520 121,039 205,728 201,101 193,800 184,633 Interest Expense........................... 100,888 103,864 241,853 246,583 250,917 239,590 243,828 Property Taxes............................. 23,469 28,367 54,300 54,195 50,057 49,096 38,534 -------- -------- -------- ---------- ---------- -------- -------- Total Expenses.................... 479,399 419,393 954,880 1,017,692 1,000,350 977,859 943,982 -------- -------- -------- ---------- ---------- -------- -------- Net Income........................ (15,493) 29,107 (4,663) (66,751) (38,336) (48,196) (56,553) ======== ======== ======== ========== ========== ======== ========
S-74 4421 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the unaudited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized a net loss of $15,493 for the six months ended June 30, 1998, compared to net income of $29,107 for the six months ended June 30, 1997. The decrease in net income of $44,600, or 153.23% was primarily the result of increased operating expenses. Revenues Rental and other property revenues from the partnership's property totaled $463,906 for the six months ended June 30, 1998, compared to $448,500 for the six months ended June 30, 1997, an increase of $15,406, or 3.44%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $277,235 for the six months ended June 30, 1998, compared to $212,675 for the six months ended June 30, 1997, an increase of $64,560 or 30.36%. The increase in operating expense is due mainly to increases in non-capitalizable property improvements, including interior painting. Management expenses totaled $23,711 for the six months ended June 30, 1998, compared to $22,895 for the six months ended June 30, 1997, an increase of $816, or 3.56,%. General and Administrative Expenses General and administrative expenses totaled $17,287 for the six months ended June 30, 1998 compared to $13,968 for the six months ended June 30, 1997, an increase of $3,319 or 23.76%. The increase is primarily due to an increase in non-capitalizable personal computer costs. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $100,888 for the six months ended June 30, 1998, compared to $103,864 for the six months ended June 30, 1997, a decrease of $2,976, or 2.87%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $4,663 for the year ended December 31, 1997, compared to a net loss of $66,751 for the year ended December 31, 1996. The increase of $62,088, or 93.01% was primarily the result of a decrease in depreciation expense. Revenues Rental and other property revenues from the partnership's property totaled $950,217 for the year ended December 31, 1997, compared to $950,941 for the year ended December 31, 1996, a decrease of $724, or 0.08%. S-75 4422 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $507,200 for the year ended December 31, 1997, compared to $479,494 for the year ended December 31, 1996, an increase of $27,706 or 5.78%. The increase in operating expenses is attributable to an increase in salary expenses. Management expenses totaled $47,212 for the year ended December 31, 1997, compared to $46,478 for the year ended December 31, 1996, an increase of $734, or 1.58%. General and Administrative Expenses General and administrative expenses totaled $30,488 for the year ended December 31, 1997 compared to $31,692 for the year ended December 31, 1996, a decrease of $1,204 or 3.80%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $241,853 for the year ended December 31, 1997, compared to $246,583 for the year ended December 31, 1996, a decrease of $4,730, or 1.92%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $66,751 for the year ended December 31, 1996, compared to a net loss of $(38,336) for the year ended December 31, 1995. The decrease in net loss of $28,415, or 74.12% was primarily the result of a decrease in revenues and an increase in operating expenses. Revenues Rental and other property revenues from the partnership's property totaled $950,941 for the year ended December 31, 1996, compared to $962,014 for the year ended December 31, 1995, a decrease of $11,073, or 1.15%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $479,494 for the year ended December 31, 1996, compared to $464,618 for the year ended December 31, 1995, an increase of $14,876 or 3.20%. Management expenses totaled $46,478 for the year ended December 31, 1996, compared to $48,314 for the year ended December 31, 1995, a decrease of $1,836, or 3.80%. General and Administrative Expenses General and administrative expenses totaled $31,692 for the year ended December 31, 1996 compared to $33,657 for the year ended December 31, 1995, a decrease of $1,965 or 5.84%. This is due to general decreases in various administrative expenses. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $246,583 for the year ended December 31, 1996, compared to $250,917 for the year ended December 31, 1995, a decrease of $4,334, or 1.73%. S-76 4423 Liquidity and Capital Resources As of June 30, 1998, your partnership had $131,607 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 partners of your partnership and their affiliates are not liable, responsible or accountable, in damages or otherwise to your partnership or any limited partner for any acts performed by any of them which are reasonably believed by them to be within the scope of the authority conferred on them by your partnership's agreement of limited partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation. 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 owned by AIMCO. See "Conflicts of Interest". The general partners and their affiliates are entitled to indemnification by your partnership for any and all acts performed by them which are reasonably within the scope of the authority conferred upon them by your partnership's agreement of limited partnership or by your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation; provided, however, that such indemnity will be paid out of and only to the extent of partnership assets. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions Your partnership has not made any distributions in the last five years. The original cost per unit was $68,429. Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions S-77 4424 (excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0.0 0.00% 0 1995......................... 0.0 0.00% 0 1996......................... 0.0 0.00% 0 1997......................... 0.0 0.00% 0 1998 (through June 30)....... 0.5 0.01% 1
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP AIMCO currently owns a 1.01% limited partnership interest in your partnership. Except as described above, Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994............................................ 32,927 1995............................................ 36,266 1996............................................ 28,641 1997............................................ 25,249 1998 (through June 30)..........................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $48,314 1996........................................... 46,478 1997........................................... 47,212 1998 (through June 30)......................... 23,711
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 company paid to the property manager or AIMCO and its affiliates. S-78 4425 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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. S-79 4426 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Statement of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of June 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Revenue and Expenses -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)............................................... F-3 Condensed Statements of Cash Flows -- Income Tax Basis for the six months ended June 30, 1998 and 1997 (unaudited)... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Accountants' Compilation Report................. F-7 Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1997 and 1996 (unaudited).......................................... F-8 Statements of Revenue and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1997 and 1996 (unaudited)............................. F-9 Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1997 and 1996 (unaudited).............. F-10 Notes to Financial Statements -- Income Tax Basis........... F-11 Independent Accountants' Compilation Report................. F-15 Statements of Assets, Liabilities and Partners' Deficit -- Income Tax Basis as of December 31, 1996 and 1995 (unaudited).......................................... F-16 Statements of Revenue and Expenses and Changes in Partners' Deficit -- Income Tax Basis for the years ended December 31, 1996 and 1995 (unaudited)............................. F-17 Statements of Cash Flows -- Income Tax Basis for the years ended December 31, 1996 and 1995 (unaudited).............. F-18 Notes to Financial Statements -- Income Tax Basis........... F-19
F-1 4427 WALKER SPRINGS, LIMITED CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS DEFICIT -- INCOME TAX BASIS (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 131,607 Restricted Escrows.......................................... 181,048 Other Assets................................................ 185,725 Investment Property: Land...................................................... 134,400 Building and related personal property.................... 4,425,813 ----------- 4,560,213 Less: Accumulated depreciation............................ (3,806,434) 753,779 ----------- ----------- Total Assets...................................... $ 1,252,159 =========== LIABILITIES AND PARTNERS' CAPITAL Other Accrued Liabilities................................... 48,900 Notes Payable............................................... 2,516,867 Partners' Capital........................................... (1,313,608) ----------- Total Liabilities and Partners' Capital........... $ 1,252,159 ===========
F-2 4428 WALKER SPRINGS, LIMITED CONDENSED STATEMENTS OF REVENUE AND EXPENSES INCOME TAX BASIS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $436,393 $421,693 Other Income.............................................. 27,513 26,807 -------- -------- Total Revenues.................................... 463,906 448,500 Expenses: Operating Expenses........................................ 277,235 212,674 General and Administrative Expenses....................... 17,287 13,968 Depreciation Expense...................................... 60,520 60,520 Interest Expense.......................................... 100,888 103,864 Property Tax Expense...................................... 23,469 28,367 -------- -------- Total Expenses.................................... 479,399 419,393 Net Income (Loss)................................. $(15,493) $ 29,107 ======== ========
F-3 4429 WALKER SPRINGS, LIMITED CONDENSED STATEMENTS OF CASH FLOWS INCOME TAX BASIS
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Operating Activities: Net Income (loss)......................................... $(15,493) $ 29,107 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 60,520 63,450 Changes in accounts: Receivables and deposits and other assets............ 5,588 12,868 Accounts Payable and accrued expenses................ (21,386) (33,444) -------- -------- Net cash provided by (used in) operating activities....................................... 29,229 71,981 -------- -------- Investing Activities: Property improvements and replacements.................... (41,157) (51,656) Net (increase)/decrease in restricted escrows............. (3,995) (3,599) -------- -------- Net cash provided by (used in) investing activities....................................... (45,152) (55,255) -------- -------- Financing Activities: Payments on mortgage...................................... (40,783) (37,807) -------- -------- Net cash provided by (used in) financing activities....................................... (40,783) (37,807) -------- -------- Net increase (decrease) in cash and cash equivalents...................................... (56,706) (21,081) Cash and cash equivalents at beginning of year.............. 188,313 133,047 -------- -------- Cash and cash equivalents at end of period.................. $131,607 $111,966 ======== ========
F-4 4430 WALKER SPRINGS, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Walker Springs, Limited as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 4431 WALKER SPRINGS, LIMITED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 AND 1996 F-6 4432 WALKER SPRINGS, LIMITED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED) ASSETS
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash and cash equivalents................................... $ 101,015 $ 116,072 Receivables and deposits.................................... 87,298 75,754 Restricted escrows (Note B)................................. 177,053 169,775 Other assets................................................ 191,313 200,830 Investment properties (Note C): Land...................................................... 134,400 134,400 Buildings and related personal property................... 4,384,656 4,301,436 ----------- ----------- 4,519,056 4,435,836 Less accumulated depreciation............................. (3,745,914) (3,624,875) ----------- ----------- 773,142 810,961 ----------- ----------- $ 1,329,821 $ 1,373,392 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 34,579 $ 18,542 Tenant security deposit liabilities....................... 18,325 16,975 Other liabilities......................................... 17,383 17,083 Mortgage notes payable (Note C)........................... 2,557,650 2,614,245 Partners' deficit........................................... (1,298,116) (1,293,453) ----------- ----------- $ 1,329,821 $ 1,373,392 =========== ===========
See accompanying notes to financial statements -- income tax basis. F-7 4433 WALKER SPRINGS, LIMITED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED)
YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Revenues: Rental income............................................. $ 901,201 $ 877,481 Other income.............................................. 49,016 73,640 ----------- ----------- Total revenues.................................... 950,217 951,121 ----------- ----------- Expenses: Operating (Note D)........................................ 507,200 479,494 General and administrative (Note D)....................... 30,488 31,692 Depreciation.............................................. 121,039 205,728 Interest.................................................. 241,853 246,583 Property taxes............................................ 54,300 54,195 ----------- ----------- Total expenses.................................... 954,880 1,017,692 ----------- ----------- Net loss.................................................... (4,663) (66,571) Partners' deficit at beginning of year...................... (1,293,453) (1,226,882) ----------- ----------- Partners' deficit at end of year............................ $(1,298,116) $(1,293,453) =========== ===========
See accompanying notes to financial statements -- income tax basis. F-8 4434 WALKER SPRINGS, LIMITED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED)
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Cash flows from operating activities: Net loss.................................................. $ (4,663) $(66,571) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 121,039 205,728 Amortization of discounts and loan costs............... 35,584 34,692 Change in accounts: Receivables and deposits............................. (11,544) 20,820 Other assets......................................... (5,589) -- Accounts payable..................................... 16,037 6,052 Tenant security deposit liabilities.................. 1,350 (1,000) Other liabilities.................................... 300 300 -------- -------- Net cash provided by operating activities......... 152,514 200,021 -------- -------- Cash flows from investing activities: Property improvements and replacements.................... (83,220) (95,017) Net (deposits to) received from restricted escrows........ (7,278) 11,381 -------- -------- Net cash used in investing activities............. (90,498) (83,636) -------- -------- Cash flows from financing activities: Payments on mortgage notes payable........................ (77,073) (71,450) -------- -------- Net cash used in financing activities............. (77,073) (71,450) -------- -------- Net (decrease) increase in cash and cash equivalents........ (15,057) 44,935 Cash and cash equivalents at beginning of year.............. 116,072 71,137 -------- -------- Cash and cash equivalents at end of year.................... $101,015 $116,072 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $206,269 $211,891 ======== ========
See accompanying notes to financial statements -- income tax basis. F-9 4435 WALKER SPRINGS, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1997 AND 1996 (UNAUDITED) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Walker Springs, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated May 13, 1982. The Partnership owns and operates a 168 unit apartment complex, Walker Springs Apartments, in Knoxville, Tennessee. The Partnership's Managing General Partner is Davidson Properties, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. Basis of Accounting The financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present the financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because, on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, and (3) syndication costs are not amortized. On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. Depreciation Depreciation is provided for in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Under generally accepted accounting principles, the cost of depreciable assets would be allocated systematically over their estimated useful lives. Other Assets Other assets at December 31, 1997 and 1996 include deferred loan costs of $74,257 and $89,362, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Also included in other assets are syndication costs of $108,968 which are not amortized. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. F-10 4436 WALKER SPRINGS, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Reclassifications Certain 1996 amounts have been reclassified to conform to the 1997 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 consist of the following:
1997 1996 -------- -------- Reserve Escrow -- A portion of the proceeds of the 1992 loan refinancing was placed into a reserve escrow. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. .... $177,053 $169,775 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ---------- First mortgage note payable in monthly installments of $23,040, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $2,581,827 $2,658,900 Second mortgage note payable in interest only monthly installments of $572, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 90,284 90,284 ---------- ---------- Principal balance at year end............................... 2,672,111 2,749,184 Less unamortized discount................................... (114,461) (134,939) ---------- ---------- $2,557,650 $2,614,245 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 83,139 1999..................................................... 89,683 2000..................................................... 96,741 2001..................................................... 104,355 2002..................................................... 2,298,193 ---------- $2,672,111 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-11 4437 WALKER SPRINGS, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Property management fee.......................... $47,212 $46,478 Partnership administration fee................... $ 5,500 $ 6,000 Reimbursement for services of affiliates......... $19,749 $20,519 Construction oversight costs..................... $ -- $ 2,122
F-12 4438 WALKER SPRINGS, LIMITED FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 AND 1995 F-13 4439 WALKER SPRINGS, LIMITED STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS DEFICIT -- INCOME TAX BASIS (UNAUDITED) ASSETS
DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Cash and cash equivalents: Unrestricted.............................................. $ 116,072 $ 71,137 Restricted -- tenant security deposits.................... 16,975 17,975 Accounts receivable......................................... 1,160 2,190 Escrow for taxes............................................ 57,619 76,409 Restricted escrows (Note B)................................. 169,775 181,156 Other assets................................................ 200,830 215,937 Investment properties (Note C): Land...................................................... 134,400 134,400 Buildings and related personal property................... 4,301,436 4,206,419 ----------- ----------- 4,435,836 4,340,819 Less accumulated depreciation............................. (3,624,875) (3,419,147) ----------- ----------- 810,961 921,672 ----------- ----------- $ 1,373,392 $ 1,486,476 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 18,542 $ 12,490 Tenant security deposits.................................. 16,975 17,975 Other liabilities......................................... 17,083 16,783 Mortgage notes payable (Note C)........................... 2,614,245 2,666,110 Partners' deficit......................................... (1,293,453) (1,226,882) ----------- ----------- $ 1,373,392 $ 1,486,476 =========== ===========
See accompanying notes to financial statements -- income tax basis. F-14 4440 WALKER SPRINGS, LIMITED STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN PARTNERS' DEFICIT -- INCOME TAX BASIS (UNAUDITED)
YEARS ENDED DECEMBER 31, -------------------------- 1996 1995 ----------- ----------- Revenues: Rental income............................................. $ 877,481 $ 909,495 Other income.............................................. 73,640 52,519 ----------- ----------- Total revenues.................................... 951,121 962,014 ----------- ----------- Expenses: Operating (Note D)........................................ 331,179 327,089 General and administrative (Note D)....................... 31,692 33,657 Maintenance............................................... 148,315 137,529 Depreciation.............................................. 205,728 201,101 Interest.................................................. 246,583 250,917 Property taxes............................................ 54,195 50,057 ----------- ----------- Total expenses.................................... 1,017,692 1,000,350 ----------- ----------- Net loss.................................................... (66,571) (38,336) Partners' deficit at beginning of year...................... (1,226,882) (1,188,546) ----------- ----------- Partners' deficit at end of year............................ $(1,293,453) $(1,226,882) =========== ===========
See accompanying notes to financial statements -- income tax basis. F-15 4441 WALKER SPRINGS, LIMITED STATEMENTS OF CASH FLOWS -- INCOME TAX BASIS (UNAUDITED)
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 ---------- ----------- Cash flows from operating activities: Net loss.................................................. $(66,571) $ (38,336) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 205,728 201,101 Amortization of discounts and loan costs............... 34,692 33,813 Change in accounts: Restricted cash...................................... 1,000 334 Accounts receivable.................................. 1,030 26,502 Escrow for taxes..................................... 18,790 (20,362) Accounts payable..................................... 6,052 (2,926) Tenant security deposit liabilities.................. (1,000) (325) Other liabilities.................................... 300 399 -------- --------- Net cash provided by operating activities......... 200,021 200,200 -------- --------- Cash flows from investing activities: Property improvements and replacements.................... (95,017) (146,283) Deposits to restricted escrows............................ (7,374) (6,179) Receipts from restricted escrows.......................... 18,755 5,290 -------- --------- Net cash used in investing activities............. (83,636) (147,172) -------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (71,450) (66,237) -------- --------- Net cash used in financing activities............. (71,450) (66,237) -------- --------- Net increase (decrease) in cash and cash equivalents........ 44,935 (13,209) Cash and cash equivalents at beginning of year.............. 71,137 84,346 -------- --------- Cash and cash equivalents at end of year.................... $116,702 $ 71,137 ======== ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $211,891 $ 217,105 ======== =========
See accompanying notes to financial statements -- income tax basis. F-16 4442 WALKER SPRINGS, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS DECEMBER 31, 1996 AND 1995 (UNAUDITED) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Walker Springs, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Tennessee pursuant to a Limited Partnership Agreement and Certificate of Limited Partnership dated May 13, 1982. The Partnership owns and operates a 168 unit apartment complex, Walker Springs Apartments, in Knoxville, Tennessee. The Partnership's Managing General Partner is Davidson Properties, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The Property is managed by Insignia Management Group, an affiliate of Insignia. Basis of Accounting The financial statements are prepared on the basis used in the preparation of the Partnership's Federal income tax return and do not purport to present the financial position and results of operations in accordance with generally accepted accounting principles ("GAAP"). The tax basis used differs from GAAP primarily because, on the tax basis (1) certain rental income received in advance is recorded as income in the year received rather than in the year earned, (2) buildings and related personal property are depreciated using the lives specified under the accelerated cost recovery system ("ACRS") or the modified accelerated cost recovery system ("MACRS") instead of over the estimated lives of the assets, and (3) syndication costs are not amortized. On the basis of counsel's opinion, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. The Partnership's tax returns are subject to examination by Federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the respective taxing authorities. Depreciation Depreciation is provided for in amounts sufficient to allocate the cost of depreciable assets to operations over lives in accordance with the applicable statutory recovery methods, generally ACRS and MACRS, using the straight-line and accelerated methods on both real and personal property. Under generally accepted accounting principles, the cost of depreciable assets would be allocated systematically over their estimated useful lives. Other Assets Other assets at December 1, 1996 and 1995 include deferred loan costs which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Also included in other assets are syndication costs of $108,968 which are not amortized and prepaid utility deposits of $2,500. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. F-17 4443 WALKER SPRINGS, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) Reclassifications Certain 1995 amounts have been reclassified to conform to the 1996 presentation. These reclassifications had no impact on net loss or partners' deficit as previously reported. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1996 and 1995 consist of the following:
1996 1995 -------- -------- Capital Improvement Escrow -- A portion of the proceeds of the loan were placed into a capital improvement reserve account to be used for certain capital improvements. The improvements were completed in 1996....................... $ -- $ 10,253 Reserve Escrow -- Established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan.................................................. 169,775 170,903 -------- -------- $169,775 $181,156 ======== ========
NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995 ---------- ---------- First mortgage note payable in monthly installments of $23,040, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $2,658,900 $2,730,350 Second mortgage note payable in interest only monthly installments of $572, at a rate of 7.60%, with principal due November 2002; collateralized by land and buildings... 90,284 90,284 ---------- ---------- Principal balance at year end............................... 2,749,184 2,820,634 Less unamortized discount................................... (134,939) (154,524) ---------- ---------- $2,614,245 $2,666,110 ========== ==========
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1996 are as follows: 1997..................................................... $ 77,073 1998..................................................... 83,139 1999..................................................... 89,683 2000..................................................... 96,741 2001..................................................... 104,355 Thereafter............................................... 2,298,193 ---------- $2,749,184 ==========
The principal balance of the mortgage notes may not be prepaid, in whole or in part, prior to November 15, 1997. Thereafter, the principal may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid principal balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-18 4444 WALKER SPRINGS, LIMITED NOTES TO FINANCIAL STATEMENTS -- INCOME TAX BASIS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1996 1995 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ------- Property management fee.......................... $46,478 $48,314 Partnership administration fee................... $ 6,000 $ 6,000 Reimbursement for services of affiliates......... $20,519 $21,788 Construction oversight costs..................... $ 2,122 $ 8,478
F-19 4445 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 4446 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 4447 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 September , 1998 A-3 4448 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF WINGFIELD 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 WE HAVE RETAINED ROBERT A. STANGER & MINIMUM NUMBER OF UNITS BEING TENDERED. 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE WE EXTEND THE DEADLINE. REDUCED FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 4449 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 Comparison of Tax-Deferral % Preferred OP Units and Class I Preferred Stock.......... S-15 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 Our 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 Wingfield 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40
PAGE ---- Fees and Expenses............................ S-41 Accounting Treatment......................... S-41 DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-61 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-62 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71
i 4450
PAGE ---- YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72 Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-73 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77
PAGE ---- Distributions and Transfers of Units......... S-77 Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 4451 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 Wingfield 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 4452 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 4453 - 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 $594.00 per unit for the six months ended June 30, 1998 (equivalent to $1,188 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 distributions of $ 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 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 4454 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 4455 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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. 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-5 4456 (This page intentionally left blank) S-6 4457 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. 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. 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 5 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. 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 S-7 4458 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 4459 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 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 S-9 4460 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 4461 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, 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. 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 S-11 4462 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 4463 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. 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." S-13 4464 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 4465 - 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 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. COMPARISON OF TAX-DEFERRAL % PREFERRED OP UNITS AND CLASS I PREFERRED STOCK There are a number of significant differences between Tax-Deferral % Preferred OP Units and Class I Preferred Stock relating to, among other things, the nature of the investment, voting rights, distributions, liquidity and transfer and redemption rights. See "Comparison of Preferred OP Units and Class I Preferred Stock" for a chart highlighting such differences. 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 S-15 4466 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 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. In reaching the capitalization rate, we considered your 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 mortgaging 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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. S-16 4467 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 own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 4468 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 is not subject to such limitations. 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 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 fees for additional services of your partnership but may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $36,670 in 1996, $39,358 in 1997 and $20,365 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 Your Partnership and its Property. Wingfield Investors Limited Partnership is a Kansas limited partnership which was formed on January 25, 1990 for the purpose of owning and operating a single apartment S-18 4469 property located in Olathe, Kansas, known as "Wingfield Apartments". In 1990, it completed a private placement of units that raised net proceeds of approximately $1,010,350. Wingfield Apartments consists of 131 apartment units. Your partnership has no employees. Property Management. Since December 1990, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2020, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,436,765, payable to FNMA, which bears interest at a rate of 7.83%. The mortgage debt is due in October 2003. Your partnership also has a second mortgage note outstanding of $79,560, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 4470 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 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 4471
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 4472 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., transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger and the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 4473
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 4474 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 4475 SUMMARY FINANCIAL INFORMATION OF WINGFIELD INVESTORS LIMITED PARTNERSHIP The summary financial information of Wingfield Investors Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Wingfield 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 of Your Partnership" included herein. See "Index to Financial Statements." WINGFIELD INVESTORS LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- ------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- -------- OPERATING DATA: Total Revenues........................ $ 412,383 $ 378,707 $ 796,920 $ 748,276 $ 713,899 $ 692,959 $668,318 Net Income/(Loss)..................... 14,463 22,258 17,631 (19,745) (77,467) 2,872 (17,387) BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation........................ 2,022,696 2,077,032 2,039,214 2,045,296 2,117,722 2,162,869 0 Total Assets.......................... $2,357,548 $2,490,136 $2,392,635 $2,469,371 $2,656,268 $2,730,163 $ 0 Mortgage Notes Payable, including Accrued Interest.................... 2,481,977 2,519,249 2,498,987 2,534,981 2,560,195 2,583,619 0 Partners' Capital/(Deficit)........... (209,481) (159,012) (193,943) (150,969) (70,771) 67,302 0
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 YOUR 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 $594.00 $1,199.88
S-25 4476 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. 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 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 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. S-26 4477 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 Code. 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 therefore 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 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. 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 S-27 4478 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 $594 per unit (equivalent to $1,188 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 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. 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. S-28 4479 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 4480 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. S-30 4481 - 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 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 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 interest 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 4482 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 4483 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 4484 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. 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. S-34 4485 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." 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. 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. S-35 4486 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, (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 9:00 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 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, Denver, Colorado time. S-36 4487 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 4488 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. 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 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 S-38 4489 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 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 S-39 4490 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 4491 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. 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. 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-41 4492 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-42 4493 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 payment. 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 OP Units and any such S-43 4494 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-44 4495 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-45 4496 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-46 4497 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-47 4498 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-48 4499 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-49 4500 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 4501 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-51 4502 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 4503 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 4504 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 4505 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 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, a third party expert, 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 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 of with respect to your units for the six months ended June 30, 1998 were $594 per unit (equivalent to $1,188 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-55 4506 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-56 4507 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. 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-57 4508 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also S-58 4509 performed a site inspection 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 September 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 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 property was 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 S-59 4510 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. S-60 4511 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 $9,000 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-61 4512 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 Kansas law for the purpose of owning and managing Delaware limited partnership. The AIMCO Operating Wingfield Apartments. 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, 2020. 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 and operate The purpose of the AIMCO Operating Partnership is to your partnership's property for investment. Subject to conduct any business that may be lawfully conducted by restrictions contained in your partnership's agreement a limited partnership organized pursuant to the of limited partnership, your partnership may do all Delaware Revised Uniform Limited Partnership Act (as things necessary for or incidental to the protection amended from time to time, or any successor to such and benefit of your partnership, including, borrowing statute) (the "Delaware Limited Partnership Act"), funds 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-62 4513 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 units for cash and time to the limited partners and to other persons, and notes 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. 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 The general partner of your partnership may not enter The AIMCO Operating Partnership may lend or contribute into agreements with itself or any of its affiliates funds or other assets to its subsidiaries or other for services, except as otherwise specifically provided persons in which it has an equity investment, and such in your partnership's agreement of limited partnership persons may borrow funds from the AIMCO Operating or on a basis no less favorable to your partnership Partnership, on terms and conditions established in the than that which could have been arranged with sole and absolute discretion of the general partner. To unaffiliated third parties for comparable goods or the extent consistent with the business purpose of the services. Your partnership may not lend money to the AIMCO Operating Partnership and the permitted general partner or its affiliates, but the general activities of the general partner, the AIMCO Operating partner may lend such money to your partnership as the Partnership may transfer assets to joint ventures, general partner, in its sole discretion, deems limited liability companies, partnerships, necessary for the payment of any partnership corporations, business trusts or other business obligations and expenses. Such loans will be repaid entities in which it is or thereby becomes a with interest at rate of 1% per annum over the then participant upon such terms and subject to such prevailing prime rate of United Missouri Bank of Kansas conditions consistent with the AIMCO Operating Part- City, N.A., but in no event to exceed the maximum rate, nership Agreement and applicable law as the general from the first available funds of your partnership and partner, in its sole and absolute discretion, believes prior to distributions to the limited partners, only to be advisable. Except as expressly permitted by the from available funds; provided, however, that the AIMCO Operating Partnership Agreement, neither the general partner must first make reasonable efforts to general partner nor any of its affiliates may sell, obtain loans at the most favorable rates from transfer or convey any property to the AIMCO Operating unaffiliated persons. 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 enter into and execute, on behalf of your restrictions on borrowings, and the general partner has partnership, all agreement, 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, management, maintenance, op- Partnership has credit agreements that restrict, among eration and sale of your partnership's property by your other things, its ability to incur indebtedness. See partnership, on such terms as the general partner, in "Risk Factors -- Risks of Significant Indebtedness" in its reasonable discretion, deems to be in the best the accompanying Prospectus. interests of your partnership.
S-63 4514 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 the limited partners or their duly authorized with a statement of the purpose of such demand and at representative to inspect and copy the books and such OP Unitholder's own expense, to obtain a current records of your partnership, including a current list list of the name and last known business, residence or of the full name and last known business address of mailing address of the general partner and each other each partner set forth in alphabetical order, upon OP Unitholder. reasonable notice during business hours at the principal place of business of your partnership or such other place or places as may be determined by the general partner from time to time. In addition, a limited partner or its duly authorized representative has the right to receive by mail, upon written required to your partnership at such limited partner's sole cost and expense, a copy of a list of names and addresses of the limited partners and the number of units owned by each of them. However, no limited partner has the right to sell or disclose such list to any other person or to use such list for commercial purposes of any purpose unrelated to the business of your partnership.
Management Control The general partner of your partnership has full, All management powers over the business and affairs of exclusive and complete discretion in the management of the AIMCO Operating Partnership are vested in AIMCO-GP, your partnership's business and has all rights and Inc., which is the general partner. No OP Unitholder powers generally conferred by law or necessary, has any right to participate in or exercise control or advisable or consistent in connection therewith. The management power over the business and affairs of the general partner must perform such reasonable acts as AIMCO Operating Partnership. The OP Unitholders have may be consistent with good business practices in its the right to vote on certain matters described under performance as general partner. No limited partner may "Comparison of Ownership of Your Units and AIMCO OP take part in or interfere in any manner with the Units -- Voting Rights" below. The general partner may conduct or control of the business of your partnership not be removed by the OP Unitholders with or without and no limited partner has the right or authority to cause. act for or bind your partnership. 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 doing of any act or the failure to do the AIMCO Operating Partnership Agreement, the general any act by the general partner, which does not partner is not liable to the AIMCO Operating constitute fraud, gross negligence or willful mal- Partnership for losses sustained, liabilities incurred feasance as determined a court of competent or benefits not derived as a result of errors in jurisdiction, pursuant to the authority granted to it judgment or mistakes of fact or law of any act or to promote the interests of your partnership, the omission if the general partner acted in good faith. effect of which causes or results in loss or damage to The AIMCO Operating Partnership Agreement provides for your partnership, if done in good faith, will not indemnification of AIMCO, or any director or officer of subject the general partner or its affiliates to any AIMCO (in its capacity as the previous general partner liability. In addition, your partnership will also of the AIMCO Operating Partnership), indemnify and hold harmless the general
S-64 4515 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partners and their affiliates from any claim, loss, the general partner, any officer or director of general expense, liability, action or damage resulting from any partner or the AIMCO Operating Partnership and such act or omission done in good faith which do not other persons as the general partner may designate from constitute fraud, gross negligence or willful and against all losses, claims, damages, liabilities, malfeasance as determined by a court of competent joint or several, expenses (including legal fees), jurisdiction, pursuant to the authority granted to them fines, settlements and other amounts incurred in to promote the interests of your partnership, connection with any actions relating to the operations including, without limitation, reasonable fees and of the AIMCO Operating Partnership, as set forth in the expenses of attorneys engaged by the general partner in AIMCO Operating Partnership Agreement. The Delaware defense of such act or omission and other reasonable Limited Partnership Act provides that subject to the costs and expenses of litigation and appeal. All costs standards and restrictions, if any, set forth in its and expenses incurred in defending any proceeding or partnership agreement, a limited partnership may, and action or otherwise will be advanced by your shall have the power to, indemnify and hold harmless partnership. 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, after notice to the general partner, the has exclusive management power over the business and limited partners may remove such general partner upon a affairs of the AIMCO Operating Partnership. The general vote of the limited partners holding a majority of the partner may not be removed as general partner of the outstanding units. A general partner may resign at any AIMCO Operating Partnership by the OP Unitholders with time provided that such resignation is accepted by the or without cause. Under the AIMCO Operating Partnership limited partners owning more than 50% of the Agreement, the general partner may, in its sole outstanding units and sixty days prior to the effective discretion, prevent a transferee of an OP Unit from date of such resignation such general partner nominates becoming a substituted limited partner pursuant to the as a substitute general partner a willing person or AIMCO Operating Partnership Agreement. The general entity who meets the requirements of the tax laws. A partner may exercise this right of approval to deter, general partner may be admitted only with the consent delay or hamper attempts by persons to acquire a of the general partner, if any, and a controlling interest in the AIMCO Operating Partner- majority-in-interest of the limited partners. A limited ship. Additionally, the AIMCO Operating Partnership partner may not transfer its units without the consent Agreement contains restrictions on the ability of OP 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 Approval by a majority of the then outstanding limited With the exception of certain circumstances set forth partnership interests is necessary to effect an in the AIMCO Operating Partnership Agreement, whereby amendment to your partnership's agreement of limited the general partner may, without the consent of the OP partnership. Amendments may be proposed by the general Unitholders, amend the AIMCO Operating Partnership partner or by limited partners holding 10% or more of Agreement, amendments to the AIMCO Operating the then outstanding units. However, the general Partnership Agreement require the consent of the partner may amend your partnership's agreement of holders of a majority of the outstanding Common OP limited partnership from time to time to effect changes Units, excluding AIMCO and certain other limited of a ministerial nature which do not materially and exclusions (a "Majority in Interest"). Amendments to adversely affect the rights of the limited partners, as the AIMCO Operating Partnership Agreement may be required by law, to add to the representations, duties proposed by the general partner or by holders of a or obligations of the general partner or surrender any Majority in Interest. Following such proposal, the right or power granted to the general partner under general partner will submit any proposed amendment to your partnership's agreement of limited partnership for the OP Unitholders. The general partner will seek the the benefit of the limited partners, to cure any written consent of the OP Unitholders on the proposed ambiguity and to correct or supplement any provision in amendment or will call a meeting to vote thereon. See your partnership's agreement of limited partnership "Description of OP Units -- Amendment of the AIMCO which may be inconsistent with any other provision. Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner but capacity as general partner of the AIMCO Operating may receive fees for additional services. Moreover, the Partnership. In addition, the AIMCO Operating Part- general partner
S-65 4516 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP or certain affiliates may be entitled to compensation nership is responsible for all expenses incurred for additional services rendered. 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 No limited partner, unless it is deemed to be taking Except for fraud, willful misconduct or gross part in the control of the business of your negligence, no OP Unitholder has personal liability for partnership, is bound by or personally liable for the the AIMCO Operating Partnership's debts and expenses, liabilities or obligation of your obligations, and liability of the OP Unitholders for partnership. The liability of a limited partner is the AIMCO Operating Partnership's debts and obligations limited solely to the amount of its contribution to the is generally limited to the amount of their invest- capital of your partnership, whether or not returned to ment in the AIMCO Operating Partnership. However, the it, together with the undistributed share of the limitations on the liability of limited partners for profits of your partnership from time to time credited the obligations of a limited partnership have not been to such limited partner's capital account and any money clearly established in some states. If it were or other property wrongfully paid or conveyed to such determined that the AIMCO Operating Partnership had limited partner on account of its contribution, been conducting business in any state without compli- including but not limited to money or property to which ance with the applicable limited partnership statute, creditors were legally entitled, paid or conveyed to or that the right or the exercise of the right by the such limited partner, and under certain circumstances, holders of OP Units as a group to make certain interest on returned capital. 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 is not required Unless otherwise provided for in the relevant to devote all of its time or business efforts to the partnership agreement, Delaware law generally requires affairs of your partnership, but must devote so much of a general partner of a Delaware limited partnership to its time and attention to your partnership as is adhere to fiduciary duty standards under which it owes necessary and advisable to successfully manage the its limited partners the highest duties of good faith, affairs of your partnership. The general partner is not fairness and loyalty and which generally prohibit such required to manage your partnership as its sole and general partner from taking any action or engaging in exclusive function and it may have other business any transaction as to which it has a conflict of interests and may engage in other activities in interest. The AIMCO Operating Partnership Agreement addition to those relating to your partnership, includ- expressly authorizes the general partner to enter into, ing the rendering of advice or services of any kind to on behalf of the AIMCO Operating Partnership, a right other investors and the making or management of other of first opportunity arrangement and other conflict investors. Neither your partnership nor any partner has avoidance agreements with various affiliates of the rights in or to such ventures or activities or to the AIMCO Operating Partnership and the general partner, on income or proceeds derived therefrom, and the pursuit such terms as the general partner, in its sole and of such ventures, even if competitive with the business absolute discretion, believes are advisable. The AIMCO of your partnership, will not be deemed wrongful or Operating Partnership Agreement expressly limits the improper. In addition, any partner or its affiliates liability of the general partner by providing that the may engage in or possess an interest in other business general partner, and its officers and directors will ventures of every nature and description, whether such not be liable or accountable in damages to the AIMCO ventures are competitive with your partnership or Operating Partnership, the limited partners or otherwise, including but not limited to, the acquisi- assignees for errors in judgment or mistakes of fact or tion, ownership, financing, leasing, operation, law or of any act or omission if the general partner or management, syndication, brokerage, sale, construction such director or officer acted in good faith. See and development of real property, which may be located "Description of OP Units -- Fiduciary Responsibilities" in the market area or vicinity of your partnership's in the accompanying Prospectus. property, and neither your partnership nor any partners will have any right in or to such independent ventures or to the income or profits derived therefrom.
Federal Income Taxation There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units Partnership. includes in income its allocable share of the AIMCO Operating Partnership's
S-66 4517 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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).
Voting Rights Under your partnership's agreement Except as otherwise required by Under the AIMCO Operating Partner- of limited partnership, the applicable law or in the AIMCO ship Agreement, the OP Unitholders approval of hold- Operating Part- have
S-67 4518 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ers of a majority of the nership Agreement, the holders of voting rights only with respect to outstanding units is required to the Preferred OP Units will have certain limited matters such as amend your partnership's agreement the same voting rights as holders certain amendments and termination of limited partnership subject to of the Common OP Units. See of the AIMCO Operating Partnership certain limitations, to terminate "Description of OP Units" in the Agreement and certain transactions your partnership, to remove a accompanying Prospectus. So long as such as the institution of general partner and elect a any Preferred OP Units are bankruptcy proceedings, an replacement therefore and to outstanding, in addition to any assignment for the benefit of approve or disapprove the sale at other vote or consent of partners creditors and certain transfers by one time (or in a series of sales required by law or by the AIMCO the general partner of its interest pursuant to a single plan) of all Operating Partnership Agreement, in the AIMCO Operating Part- or substantially all of your the affirmative vote or consent of nership or the admission of a partnership's assets except sales holders of at least 50% of the successor general partner. made in the ordinary course of your outstanding Preferred OP Units will partnership's continuing business. be necessary for effecting any Under the AIMCO Operating Partner- All such actions, except the amendment of any of the provisions ship Agreement, the general partner removal of a general partner of the Partnership Unit Desig- has the power to effect the requires the concurrence of the nation of the Preferred OP Units acquisition, sale, transfer, general partner. that materially and adversely exchange or other disposition of affects the rights or preferences any assets of the AIMCO Operating A general partner may cause the of the holders of the Preferred OP Partnership (including, but not dissolution of your partnership by Units. The creation or issuance of limited to, the exercise or grant retiring unless, within ninety any class or series of partnership of any conversion, option, days, the remaining general partner units, including, without privilege or subscription right or agrees to continue the business of limitation, any partnership units any other right available in the partnership. If there are no that may have rights senior or connection with any assets at any remaining general partners, all of superior to the Preferred OP Units, time held by the AIMCO Operating the limited partners may agree to shall not be deemed to materially Partnership) or the merger, continue the business and elect a adversely affect the rights or consolidation, reorganization or successor general partner by a preferences of the holders of other combination of the AIMCO majority-in-interest vote within 90 Preferred OP Units. With respect to Operating Partnership with or into days of the resignation. the exercise of the above de- another entity, all without the scribed 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 Agreement) generated by partnership's assets. Your partner-
S-68 4519 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ship has made distributions in the Partnership may adjust the annual the AIMCO Operating Partnership past and is projected to made distribution rate on the Preferred during such quarter to the general distributions in 1998. OP Units to the lower of (i) % partner, the special limited plus the annual interest rate then partner and the holders of Common applicable to U.S. Treasury notes OP Units on the record date with a maturity of five years, and established by the general partner (ii) the annual dividend rate on with respect to such quarter, in the most recently issued AIMCO accordance with their respective non-convertible preferred stock interests in the AIMCO Operating which ranks on a parity with its Partnership on such record date. Class H Cumulative Preferred Stock. Holders of any other Preferred OP Such distributions will be Units issued in the future may have cumulative from the date of origi- priority over the general partner, nal issue. Holders of Preferred OP the special limited partner and Units will not be entitled to holders of Common OP Units with receive any distributions in excess respect to distributions of 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 limited partnership interest to any Preferred OP Units and the OP Units. The AIMCO Operating Part- person provided that: (i) such Preferred OP Units are not listed nership Agreement restricts the transfer is not in contravention of on any securities exchange. The transferability of the OP Units. your partnership's agreement of Preferred OP Units are subject to Until the expiration of one year limited partnership, (ii) a duly restrictions on transfer as set from the date on which an OP executed and acknowledged forth in the AIMCO Operating Unitholder acquired OP Units, assignment has been approved by the Partnership Agreement. subject to certain exceptions, such general partner, which approval OP Unitholder may not transfer all will be in its sole discretion and Pursuant to the AIMCO Operating or any portion of its OP Units to absolute power, and (iii) the Partnership Agreement, until the any transferee without the consent transferee represents in writing expiration of one year from the of the general partner, which that it satisfies the suitability date on which a holder of Preferred consent may be withheld in its sole requirements for limited partners. OP Units acquired Preferred OP and absolute discretion. After the However, no transfer may occur if Units, subject to certain expiration of one year, such in light of the total of all exceptions, such holder of transfers Preferred OP Units may
S-69 4520 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS sold or exchanged within the period not transfer all or any portion of OP Unitholder has the right to of twelve consecutive months prior its Preferred OP Units to any transfer all or any portion of its there, there might result a transferee without the consent of OP Units to any person, subject to termination of your partnership for the general partner, which consent the satisfaction of certain tax purposes in the opinion of may be withheld in its sole and conditions specified in the AIMCO counsel. In order for a transferee absolute discretion. After the Operating Partnership Agreement, to be substituted as a limited expiration of one year, such including the general partner's partner, in addition to the above holders of Preferred OP Units has right of first refusal. See requirements: (1) the assignee must the right to transfer all or any "Description of OP Units -- execute an irrevocable power of portion of its Preferred OP Units Transfers and Withdrawals" in the attorney appointing the general to any person, subject to the accompanying Prospectus. partner as the assignee's satisfaction of certain conditions attorney-in-fact, (2) an opinion of specified in the AIMCO Operating After the first anniversary of counsel must be received by the Partnership Agreement, including becoming a holder of Common OP general partner that such transfer the general partner's right of Units, an OP Unitholder has the does not violate applicable securi- first refusal. right, subject to the terms and ties laws, (3) a transfer fee must conditions of the AIMCO Operating be paid, (4) the interest After a one-year holding period, a Partnership Agreement, to require transferred must not be less than holder may redeem Preferred OP the AIMCO Operating Partnership to one unit or such lesser amount as Units and receive in exchange redeem all or a portion of the the assignor owned and (5) such therefor, at the AIMCO Operating Common OP Units held by such party other conditions as are set forth Partnership's option, (i) subject in exchange for a cash amount based in your partnership's agreement of to the terms of any Senior Units, on the value of shares of Class A limited partnership must be cash in an amount equal to the Common Stock. See "Description of fulfilled. Liquidation Preference of the OP Units -- Redemption Rights" in Preferred OP Units tendered for the accompanying Prospectus. Upon There are no redemption rights redemption, (ii) a number of shares receipt of a notice of redemption, associated with your units. of Class I Cumulative Preferred the general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-70 4521 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 generated in that capacity and fees for additional services. The property manager received management fees of $36,670 in 1996, $39,358 in 1997 and $20,365 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's 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'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 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-71 4522 YOUR PARTNERSHIP GENERAL Wingfield Investors Limited Partnership is a Kansas limited partnership which raised net proceeds of approximately $1,010,350 in 1990 through a private offering. The promoter for the private offering of your partnership was Waddell & Reed, Inc. Insignia acquired your partnership in December 1990. AIMCO acquired Insignia in October, 1998. There are currently a total of 42 limited partners of your partnership and a total of 50 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on January 25, 1990 for the purpose of owning and operating a single apartment property located in Olathe, Kansas, known as "Wingfield Apartments." Your partnership's property consists of 131 apartment units. The total rentable square footage of your partnership's property is 87,317 square feet. Your partnership's property had an average occupancy rate of approximately 96.95% in 1996 and 96.95% in 1997. The average annual rent per apartment unit is approximately $5,618. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1990, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $36,670, $39,358 and $20,365, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2020 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-72 4523 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,436,765, payable to FNMA, which bears interest at a rate of 7.83%. The mortgage debt is due in October 2003. Your partnership also has a second mortgage note outstanding of $79,560, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 4524 Below is selected financial information for Wingfield Investors Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
WINGFIELD INVESTORS LIMITED PARTNERSHIP ---------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA Cash and Cash Equivalents........... $ 116,301 $ 218,160 $ 166,899 $ 236,455 $ 340,130 $ 351,932 1993 Land & Building..................... 2,861,766 2,810,297 2,825,382 2,725,659 2,698,040 2,638,610 Bal. Sheet Accumulated Depreciation............ (839,071) (733,266) (786,168) (680,363) (580,318) (475,741) Info. Not Other Assets........................ 218,551 194,944 186,522 187,620 198,416 215,362 available ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Assets............... $2,357,548 $2,490,136 $2,392,635 $2,469,371 $2,656,268 $2,730,163 $ 0 ========== ========== ========== ========== ========== ========== ========== Mortgage & Accrued Interest......... 2,481,977 2,519,249 2,498,987 2,534,981 2,560,195 2,583,619 Other Liabilities................... 85,051 129,900 87,591 85,359 166,844 79,242 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Liabilities.......... $2,567,028 $2,649,149 $2,586,578 $2,620,340 $2,727,039 $2,662,861 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Partners' Capital (Deficit)......... $ (209,481) $ (159,012) $ (193,943) $ (150,969) $ (70,771) $ 67,302 ========== ========== ========== ========== ========== ========== ==========
WINGFIELD INVESTORS LIMITED PARTNERSHIP -------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------- ---------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA Rental Revenue................................ $383,855 $361,035 $735,927 $698,941 $668,454 $651,491 $639,690 Other Income.................................. 28,528 17,672 60,993 49,335 45,445 41,468 28,628 -------- -------- -------- -------- -------- -------- -------- Total Revenue........................ $412,383 $378,707 $796,920 $748,276 $713,899 $692,959 $668,318 -------- -------- -------- -------- -------- -------- -------- Operating Expenses............................ 204,873 164,738 380,613 368,500 377,805 294,965 283,002 General & Administrative...................... 14,314 9,282 24,336 24,110 42,953 37,653 70,973 Depreciation.................................. 52,903 52,903 105,805 100,045 107,117 100,925 95,897 Interest Expense.............................. 98,905 100,182 217,248 219,473 217,248 210,229 190,787 Property Taxes................................ 26,926 29,344 51,287 55,893 55,085 46,315 45,046 -------- -------- -------- -------- -------- -------- -------- Total Expenses....................... $397,921 $356,449 $779,289 $768,021 $791,366 $690,087 $685,705 -------- -------- -------- -------- -------- -------- -------- Net Income (loss)............................. $ 14,463 $ 22,258 $ 17,631 $(19,745) $(77,467) $ 2,872 $(17,387) ======== ======== ======== ======== ======== ======== ========
S-74 4525 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $ 14,463 for the six months ended June 30, 1998, compared to $ 22,258 for the six months ended June 30, 1997. The decrease in net income of $ 7,795, or 35.02% was primarily the result of an increase in revenues offset by a greater increase in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $412,383 for the six months ended June 30, 1998, compared to $378,707 for the six months ended June 30, 1997, an increase of $33,676, or 8.89%. This was primarily a result of a slight increase in rental rates. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $204,873 for the six months ended June 30, 1998 compared to $164,738 for the six months ended June 30, 1997 an increase of $40,135 or 24.36%. The increase is due to a general increase in operating expenses of all types, coupled with a slight increase in advertising expenses. Management expenses totaled $20,365 for the six months ended June 30, 1998, compared to $18,900 for the six months ended June 30, 1997, an increase of $1,465, or 7.75%. The increase resulted from an increase in revenues, as the management fee is calculated based on a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $14,314 for the six months ended June 30, 1998 compared to $9,282 for the six months ended June 30, 1997, an increase of $5,032 or 54.21%. The increase is primarily due to an increase in office supply and telephone expenses. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $98,905 for the six months ended June 30, 1998, compared to $100,182 for the six months ended June 30,1997, a decrease of $1,277, or 1.27%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $17,631 for the year ended December 31,1997, compared to a net loss of $19,745 for the year ended December 31, 1996. The increase in net income of $37,376 or 189.29% was primarily the result of an increase in revenues detailed in the following paragraphs. S-75 4526 Revenues Rental and other property revenues from the partnership's property totaled $796,920 for the year ended December 31, 1997, compared to $748,276 for the year ended December 31, 1996, an increase of $48,644, or 6.50% due to increased rental rates. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $380,613 for the year ended December 31,1997 compared to $368,500 for the year ended December 31, 1996, an increase of $12,113 or 3.29%. Management expenses totaled $39,358 for the year ended December 31, 1997, compared to $36,670 for the year ended December 31, 1996, an increase of $2,688, or 7.33%. This resulted from increased revenues, which the fee is based upon. General and Administrative Expenses General and administrative expenses totaled $24,336 for the year ended December 31, 1997 compared to $24,110 for the year ended December 31, 1996, an increase of $226 or 0.94%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $217,248 for the year ended December 31, 1997, compared to $219,473 for the year ended December 31,1996, a decrease of $2,225, or 1.01%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $19,745 for the year ended December 31,1996, compared to a net loss of $77,467 for the year ended December 31, 1995. The increase of $57,722, or 74.51% was primarily the result of increased revenues coupled with a slight decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $748,276 for the year ended December 31, 1996, compared to $713,899 for the year ended December 31, 1995, an increase of $34,377, or 4.82%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $368,500 for the year ended December 31,1996 compared to $364,948 for the year ended December 31, 1995, an increase of $3,552 or 0.97%. Management expenses totaled $36,670 for the year ended December 31, 1996, compared to $35,097 for the year ended December 31, 1995, an increase of $1,573, or 4.48%. General and Administrative Expenses General and administrative expenses totaled $24,110 for the year ended December 31, 1996 compared to $42,953 for the year ended December 31, 1995, a decrease of $18,843 or 43.87%. The decrease is primarily due to reclassing on the financial statements of certain accounts from general and administrative to Operating. Grouped the same way as in 1995, 1996 general and administrative expense would be $44,367. S-76 4527 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $219,473 for the year ended December 31, 1996, compared to $221,263 for the year ended December 31,1995, a decrease of $1,790, or 0.81%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $116,301 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 doing of any act or the failure to do any act by the general partner, which does not constitute fraud, gross negligence or willful malfeasance as determined a court of competent jurisdiction, pursuant to the authority granted to it to promote the interests of your partnership, the effect of which causes or results in loss or damage to your partnership, if done in good faith, will not subject the general partner or its affiliates to any liability. 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 owned by AIMCO. See "Conflicts of Interest". Your partnership will also indemnify and hold harmless the general partners and their affiliates from any claim, loss, expense, liability, action or damage resulting from any act or omission done in good faith which do not constitute fraud, gross negligence or willful malfeasance as determined by a court of competent jurisdiction pursuant to the authority granted to it to promote the interests of your partnership, including, without limitation, reasonable fees and expenses of attorneys engaged by the general partner in defense of such act or omission and other reasonable costs and expenses of litigation and appeal. All costs and expenses incurred in defending any proceeding or action or otherwise will be advanced by your partnership. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $1,200.00 1995........................................................ 1,200.00 1996........................................................ 1,197.00 1997........................................................ 1,199.88 1998 (through June 30)...................................... 594.00
S-77 4528 Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ 10,000 1995........................................................ 15,000 1996........................................................ 15,756 1997........................................................ 15,852 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... 35,097 1996........................................... 36,670 1997........................................... 39,358 1998 (through June 30)......................... 20,365
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 company paid to the property manager or AIMCO and its affiliates. S-78 4529 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Wingfield Investors Limited Partnership at December 31, 1997, and 1996 and for the four years in the period ended December 31, 1997, appearing in this Prospectus Supplement have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-79 4530 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheet as of December 31, 1997....................... F-8 Statements of Operations for the years ended December 31, 1997 and 1996............................................. F-9 Statements of Changes in Partners' Deficit for the years ended December 31, 1997 and 1996.......................... F-10 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-11 Notes to Financial Statements............................... F-12 Balance Sheet as of December 31, 1996....................... F-16 Statements of Operations for the years ended December 31, 1996 and 1995............................................. F-17 Statements of Changes in Partners' Capital (Deficit) for the years ended December 31, 1996 and 1995................................ F-18 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-19 Notes to Financial Statements............................... F-20
F-1 4531 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 116,301 Receivables and Deposits.................................... 82,629 Restricted Escrows.......................................... 57,653 Other Assets................................................ 78,269 Investment Property: Land...................................................... 327,500 Building and related personal property.................... 2,534,266 ---------- 2,861,766 Less: Accumulated depreciation............................ (839,071) 2,022,695 ---------- ---------- Total Assets:..................................... $2,357,547 ========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable............................................ $ 17,627 Other Accrued Liabilities................................... 15,937 Property Taxes Payable...................................... 26,926 Tenant Security Deposits.................................... 24,561 Notes Payable............................................... 2,481,977 Partners' Deficit........................................... (209,481) ---------- Total Liabilities and Partners' Deficit........... $2,357,547 ==========
F-2 4532 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $383,870 $361,035 Other Income.............................................. 28,513 17,672 -------- -------- Total Revenues:................................... 412,384 378,707 Expenses: Operating Expenses........................................ 216,199 169,002 General and Administrative Expenses....................... 5,616 8,611 Depreciation Expense...................................... 52,903 52,903 Interest Expense.......................................... 96,277 96,589 Property Tax Expense...................................... 26,926 29,344 -------- -------- Total Expenses:................................... 397,921 356,449 -------- -------- Net Income........................................ $ 14,463 $ 22,258 ======== ========
F-3 4533 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30 ------------------- 1998 1997 -------- -------- Operating Activities: Net Income................................................ $ 14,463 $ 22,258 Adjustments to reconcile net income to net cash provided by operating Activities: Depreciation and Amortization.......................... 52,903 52,903 Changes in accounts: Receivables and deposits and other assets............ (47,437) (6,796) Accounts payable and accrued expenses................ (1,557) 45,157 -------- -------- Net cash provided by operating activities......... 18,372 113,522 -------- -------- Investing Activities: Property improvements and replacements.................... (36,384) (84,638) Net (increase)/decrease in restricted escrows............. 39,968 (1,146) -------- -------- Net cash provided by (used in) investing activities....................................... 3,584 (85,784) -------- -------- Financing Activities: Payments on mortgage...................................... (17,010) (15,733) Partners' distributions................................... (30,000) (30,300) -------- -------- Net cash used in financing activities............. (47,010) (46,033) -------- -------- Net increase (decrease) in cash and cash equivalents...................................... (25,054) (18,295) Cash and cash equivalents at beginning of year.............. 141,355 236,455 -------- -------- Cash and cash equivalents at end of period.................. $116,301 $218,160 ======== ========
F-4 4534 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Wingfield Investors Limited Partnership as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 4535 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND INDEPENDENT AUDITORS' REPORT F-6 4536 INDEPENDENT AUDITORS' REPORT To the Partners of Wingfield Investors Limited Partnership (A Kansas Limited Partnership): We have audited the accompanying balance sheet of Wingfield Investors Limited Partnership (a Kansas Limited Partnership) (the "Partnership") as of December 31, 1997 and 1996, and the related statements of operations, changes in partners' deficit, and cash flows for each of the two years in the period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 1997, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP SIGNATURE February 17, 1998 (except for Note 6, as to which the date is March 17, 1998) F-7 4537 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) BALANCE SHEET DECEMBER 31, 1997 ASSETS Cash and cash equivalents................................... $ 141,355 Receivables and deposits.................................... 36,731 Restricted escrows.......................................... 97,621 Other assets (Note 1)....................................... 77,714 Investment properties -- at cost (Notes 1 and 2): Land...................................................... $ 327,500 Buildings and related personal property................... 2,497,882 ---------- 2,825,382 Less accumulated depreciation............................... (786,168) 2,039,214 ---------- ---------- TOTAL ASSETS................................................ $2,392,635 ========== LIABILITIES AND PARTNERS' DEFICIT LIABILITIES: Accounts payable.......................................... $ 16,965 Tenant security deposits payable.......................... 25,544 Accrued property taxes.................................... 25,643 Other liabilities......................................... 19,439 Mortgage notes payable (Note 2)........................... 2,498,987 PARTNERS' DEFICIT (Note 3): General partner........................................... $ (22,396) Limited partners (50 units issued and outstanding)........ (171,547) (193,943) ---------- ---------- TOTAL LIABILITIES AND PARTNERS' DEFICIT..................... $2,392,635 ==========
See notes to financial statements. F-8 4538 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 -------- -------- REVENUES: Rental income............................................. $735,927 $698,941 Other income.............................................. 60,993 49,335 -------- -------- Total revenues.................................... 796,920 748,276 -------- -------- EXPENSES: Operating................................................. 380,613 368,500 General and administrative................................ 24,336 24,110 Depreciation.............................................. 105,805 100,045 Interest.................................................. 217,248 219,473 Property taxes............................................ 51,287 55,893 -------- -------- Total expenses.................................... 779,289 768,021 -------- -------- NET INCOME (LOSS) (Note 5).................................. $ 17,631 $(19,745) ======== ======== NET INCOME (LOSS) ALLOCATED TO GENERAL PARTNER (1%)......... $ 176 $ (197) NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS (99%)....... 17,455 (19,548) -------- -------- $ 17,631 $(19,745) ======== ======== NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT -- Based on 50 weighted average limited partnership units during the years ended December 31, 1997 and 1996...... $ 349 $ (391) ======== ========
See notes to financial statements. F-9 4539 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' DEFICIT YEARS ENDED DECEMBER 31, 1997 AND 1996
LIMITED PARTNERSHIP GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL ----------- -------- --------- --------- PARTNERS' DEFICIT, DECEMBER 31, 1995.......................... 50 $(21,164) $ (49,607) $ (70,771) Partners' distributions.................... -- (605) (59,848) (60,453) Net loss for the year ended December 31, 1996....................... -- (197) (19,548) (19,745) -- -------- --------- --------- PARTNERS' DEFICIT, DECEMBER 31, 1996.......................... 50 (21,966) (129,003) (150,969) Partners' distributions.................... -- (606) (59,999) (60,605) Net income for the year ended December 31, 1997....................... -- 176 17,455 17,631 -- -------- --------- --------- PARTNERS' DEFICIT, DECEMBER 31, 1997.......................... 50 $(22,396) $(171,547) $(193,943) == ======== ========= =========
See notes to financial statements. F-10 4540 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................................... $ 17,631 $ (19,745) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 105,805 100,045 Amortization of mortgage discount and loan costs....... 17,511 17,238 Change in operating assets and liabilities: Receivables and deposits............................. (8,337) (2,183) Other assets......................................... (2,286) (1,500) Accounts payable..................................... (6,498) (60,697) Tenant security deposits payable..................... 2,786 2,236 Accrued property taxes............................... (2,304) 405 Other liabilities.................................... (308) (23,340) --------- --------- Net cash provided by operating activities......... 124,000 12,459 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Property improvements and replacements.................... (99,723) (27,619) Net deposits to restricted escrows........................ (3,922) (749) --------- --------- Net cash used in investing activities............. (103,645) (28,368) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on mortgage notes payable.............. (32,092) (29,683) Partners' distributions................................... (60,605) (60,453) --------- --------- Net cash used in financing activities............. (92,697) (90,136) --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (72,342) (106,045) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 213,697 319,742 --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 141,355 $ 213,697 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -- Cash paid during the year for interest.................... $ 199,738 $ 202,058 ========= =========
See notes to financial statements. F-11 4541 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND 1996 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Wingfield Investors Limited Partnership (a Kansas Limited Partnership) (the "Partnership") was formed to acquire, own and operate Wingfield Apartments, a 131-unit multifamily residential complex located in Olathe, Kansas. The general partner of the Partnership is United Investors Real Estate, Inc., a Delaware corporation. Basis of Accounting The accompanying financial statements of the Partnership are prepared on the accrual basis and, therefore, revenue is recorded as earned and costs and expenses are recorded as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Cash and cash equivalents includes cash on hand and in banks, money market funds and certificates of deposit with original maturities of less than three months. Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the leases and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Income Taxes For income tax purposes, the Partnership reports revenue and costs and expenses on the accrual method. No income tax provisions have been shown in the accompanying statements of operations since the partners are taxed individually. Investment Properties Investment properties are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of fifteen to forty years for buildings and improvements and five to twelve years for furniture and fixtures. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Other Assets Included in other assets are deferred charges which consist of loan costs totaling $126,685 which are amortized over the terms of the related notes. Accumulated amortization as of December 31, 1997 was $52,757. F-12 4542 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Advertising The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was $25,586 and $15,099 for the years ended December 31, 1997 and 1996, respectively. Reclassifications Certain reclassifications of prior year balances have been made to conform to the current year's presentation. 2. MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows:
MONTHLY PRINCIPAL PAYMENT STATED PRINCIPAL BALANCE AT INCLUDING INTEREST MATURITY BALANCE DUE DECEMBER 31, DESCRIPTION INTEREST RATE DATE AT MATURITY 1997 - ----------- --------- -------- -------- ----------- ------------ First mortgage.............. $18,800 7.83% 10/15/03 $2,211,679 $2,453,775 Second mortgage............. 519 7.83% 10/15/03 79,560 79,560 ------- ---------- $19,319 2,533,335 ======= Less unamortized discount... (34,348) ---------- Total....................... $2,498,987 ==========
Scheduled maturities of principal are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - ------------------------ ---------- 1998........................................................ $ 34,697 1999........................................................ 37,513 2000........................................................ 40,559 2001........................................................ 43,850 2002........................................................ 47,410 Thereafter.................................................. 2,329,306 ---------- Total....................................................... $2,533,335 ==========
Mortgages are collateralized by the related property and improvements of the Partnership. 3. PARTNERS' DEFICIT Allocations of Profits and Losses In accordance with the partnership agreement, all profits and losses are to be allocated 1% to the general partner and 99% to the limited partners. Distributions The Partnership allocates distributions 1% to the general partner and 99% to the limited partners. On February 15, 1998, the Partnership paid a distribution to the partners of $15,000. F-13 4543 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. RELATED PARTY TRANSACTIONS During the years ended December 31, 1997 and 1996 the Partnership paid the following amounts to affiliates of the general partner:
1997 1996 ------- ------- Property management fees.................................... $39,358 $36,670 Reimbursement of expenses................................... 15,852 15,756
In addition, affiliates of the general partner were paid $13,843 and $12,378 during 1997 and 1996, respectively, for construction oversight costs incurred in conjunction with the Partnership's capital improvement and major repair projects. For the period from January 1, 1996 to August 31, 1997, the Partnership insured Wingfield Apartments under a master policy through an agency and insurer unaffiliated with the general partner. An affiliate of the general partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the general partner, who received payments on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the general partner by virtue of the agent's obligations was not significant. 5. PARTNER TAX INFORMATION The following is a reconciliation between net income (loss) as reported in the financial statements and Federal taxable income (loss) allocated to the partners in the Partnership's information returns for the years ended December 31, 1997 and 1996:
1997 1996 ------- -------- Net income (loss) as reported............................... $17,631 $(19,745) Add (deduct): Deferred revenue.......................................... (508) (23,368) Depreciation differences.................................. (2,610) (7,297) Accrued expenses.......................................... 200 300 ------- -------- Federal taxable income (loss)............................... $14,713 $(50,110) ======= ======== Federal taxable income (loss) per limited partnership unit.......................................... $ 291 $ (992) ======= ========
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets at December 31, 1997 and 1996:
1997 1996 --------- --------- Net deficit as reported..................................... $(193,943) $(150,969) Differences in basis of assets and liabilities: Deferred revenue.......................................... 525 1,033 Accumulated depreciation.................................. (5,409) (2,799) Accrued expenses.......................................... 7,500 7,300 Syndication costs......................................... 102,577 102,577 --------- --------- Net assets -- tax basis..................................... $ (88,750) $ (42,858) ========= =========
F-14 4544 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. SUBSEQUENT EVENTS On March 17, 1998, Insignia Financial Group, Inc. ("Insignia") entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the general partner of the Partnership. F-15 4545 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) BALANCE SHEET DECEMBER 31, 1996 ASSETS Cash and cash equivalents................................... $ 213,697 Restricted cash -- tenant security deposits................. 22,758 Accounts receivable......................................... 40 Escrows for taxes and insurance............................. 5,596 Restricted escrows.......................................... 93,699 Other assets................................................ 1,500 Deferred charges -- net of accumulated amortization of $39,901................................................... 86,785 Apartment properties -- at cost (Notes 1 and 2): Land...................................................... $ 327,500 Buildings, improvements and related personal property..... 2,398,159 ---------- 2,725,659 Less accumulated depreciation............................. (680,363) 2,045,296 ---------- ---------- TOTAL ASSETS................................................ $2,469,371 ========== LIABILITIES AND PARTNERS' DEFICIT LIABILITIES: Accounts payable.......................................... $ 23,463 Accrued and other liabilities: Property taxes......................................... $ 27,947 Tenant security deposits............................... 22,758 Interest............................................... 8,556 Unearned rental collections............................ 1,035 Other.................................................. 10,156 70,452 ---------- Mortgage notes payable (Note 2)........................... 2,526,425 PARTNERS' DEFICIT (Note 3): General partner........................................... (21,966) Limited partners (50 units issued and outstanding)........ (129,003) (150,969) ---------- ---------- TOTAL LIABILITIES AND PARTNERS' DEFICIT..................... $2,469,371 ==========
See notes to financial statements. F-16 4546 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 -------- -------- REVENUES: Rentals................................................... $698,941 $668,454 Other income.............................................. 35,353 26,661 -------- -------- Total revenues.................................... 734,294 695,115 -------- -------- EXPENSES: Operating................................................. 153,239 151,373 Administrative............................................ 44,367 42,953 Property management fees (Note 4)......................... 36,670 35,097 Advertising and rental incentives......................... 29,877 17,913 Maintenance............................................... 109,833 141,213 Depreciation.............................................. 100,045 107,117 Amortization of deferred charges.......................... 12,858 12,857 Interest.................................................. 206,616 208,406 Property taxes............................................ 55,893 55,085 Insurance................................................. 18,623 19,352 -------- -------- Total expenses.................................... 768,021 791,366 -------- -------- LOSS FROM PROPERTY OPERATIONS............................... (33,727) (96,251) INTEREST INCOME............................................. 13,982 18,784 -------- -------- NET LOSS (Note 5)........................................... $(19,745) $(77,467) ======== ======== NET LOSS ALLOCATED TO GENERAL PARTNER (1%).................. $ (197) $ (775) NET LOSS ALLOCATED TO LIMITED PARTNERS (99%)................ (19,548) (76,692) -------- -------- $(19,745) $(77,467) ======== ======== NET LOSS PER LIMITED PARTNERSHIP UNIT -- Based on 50 weighted average limited partnership units during the years ended December 31, 1996 and 1995...... $ (391) $ (1,534) ======== ========
See notes to financial statements. F-17 4547 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 1996 AND 1995
LIMITED PARTNERSHIP GENERAL LIMITED UNITS PARTNER PARTNERS TOTAL ----------- -------- --------- --------- PARTNERS' CAPITAL (DEFICIT), DECEMBER 31, 1994....................................... 50 $(19,783) $ 87,085 $ 67,302 Partners' distributions.................... -- (606) (60,000) (60,606) Net loss for the year ended December 31, 1995.................................... -- (775) (76,692) (77,467) -- -------- --------- --------- PARTNERS' DEFICIT, DECEMBER 31, 1995......... 50 (21,164) (49,607) (70,771) Partners' distributions.................... -- (605) (59,848) (60,453) Net loss for the year ended December 31, 1996.................................... -- (197) (19,548) (19,745) -- -------- --------- --------- PARTNERS' DEFICIT, DECEMBER 31, 1996......... 50 $(21,966) $(129,003) $(150,969) == ======== ========= =========
See notes to financial statements. F-18 4548 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $ (19,745) $(77,467) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 100,045 107,117 Amortization of deferred charges....................... 12,858 12,857 Amortization of mortgage discount...................... 4,380 4,121 Loss on disposal of property........................... -- 4,322 Change in operating assets and liabilities: Restricted cash...................................... (2,370) 1,525 Accounts receivable.................................. 1,597 (446) Escrow deposits for taxes and insurance.............. (1,410) 7,006 Other assets......................................... (1,500) -- Accounts payable..................................... (60,697) 70,254 Accrued property taxes............................... 405 4,384 Tenant security deposits liability................... 2,236 (964) Accrued interest..................................... 89 (89) Unearned rental collections.......................... (23,368) 9,167 Other liabilities.................................... (61) 4,761 --------- -------- Net cash provided by operating activities......... 12,459 146,548 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property improvements and replacements.................... (27,619) (66,292) Deposits to restricted escrows............................ (3,959) (2,471) Receipts from restricted escrows.......................... 3,210 -- --------- -------- Net cash used in investing activities............. (28,368) (68,763) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on mortgage notes payable.............. (29,683) (27,456) Partners' distributions................................... (60,453) (60,606) --------- -------- Net cash used in financing activities............. (90,136) (88,062) --------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (106,045) (10,277) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 319,742 330,019 --------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 213,697 $319,742 ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -- Cash paid during the year for interest.................... $ 202,058 $204,375 ========= ========
See notes to financial statements. F-19 4549 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996 AND 1995 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Wingfield Investors Limited Partnership (A Kansas Limited Partnership) (the "Partnership") was formed to acquire, own and operate Wingfield Apartments, a 131-unit multifamily residential complex located in Olathe, Kansas. The general partner of the Partnership is United Investors Real Estate, Inc., a Delaware corporation. Basis of Accounting The accompanying financial statements of the Partnership are prepared on the accrual basis and, therefore, revenue is recorded as earned and costs and expenses are recorded as incurred. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Cash and cash equivalents includes cash on hand and in banks, money market funds and certificates of deposit with original maturities of less than three months. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are considered restricted cash. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Income Taxes For income tax purposes, the Partnership reports revenue and costs and expenses on the accrual method. No income tax provisions have been shown in the accompanying statements of operations since the partners are taxed individually. Apartment Properties Apartment properties are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of fifteen to forty years for buildings and improvements and five to twelve years for furniture and fixtures. During 1995, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of SFAS No. 121 had no effect on the Partnership's financial statements. F-20 4550 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Deferred Charges Deferred charges consist of loan costs which are amortized over the terms of the related notes. Advertising The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was $15,099 and $10,034 for the years ended December 31, 1996 and 1995, respectively. Reclassifications Certain reclassifications of prior year balances have been made to conform to the current year's presentation. 2. MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows:
MONTHLY PRINCIPAL PAYMENT STATED PRINCIPAL BALANCE AT INCLUDING INTEREST MATURITY BALANCE DUE DECEMBER 31, DESCRIPTION INTEREST RATE DATE AT MATURITY 1996 - ----------- --------- -------- -------- ----------- ------------ First mortgage...................... $18,800 7.83% 10/15/03 $2,211,679 $2,485,867 Second mortgage..................... 519 7.83 10/15/03 79,560 79,560 ------- ---------- $19,319 2,565,427 ======= Less unamortized discount........... 39,002 ---------- Total............................... $2,526,425 ==========
Scheduled maturities of principal are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - ------------ ---------- 1997........................................................ $ 32,092 1998........................................................ 34,697 1999........................................................ 37,513 2000........................................................ 40,559 2001........................................................ 43,850 Thereafter.................................................. 2,376,716 ---------- Total....................................................... $2,565,427 ==========
Mortgages are collateralized by the related property and improvements of the Partnership. 3. PARTNERS' EQUITY Allocations of Profits and Losses In accordance with the partnership agreement, all profit and losses are to be allocated 1% to the general partner and 99% to the limited partners. F-21 4551 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Distributions The Partnership allocates distributions 1% to the general partner and 99% to the limited partners. Subsequent to December 31, 1996, the Partnership paid a distribution to the partners of $15,150 on February 15, 1997. 4. RELATED PARTY TRANSACTIONS During the years ended December 31, 1996 and 1995 the Partnership paid the following amounts to affiliates of the general partner:
1996 1995 ------- ------- Property management fees.................................... $36,670 $35,097 Reimbursement of expenses................................... 15,756 15,000
In addition, affiliates of the general partner were paid $12,378 and $9,269 during 1996 and 1995, respectively, for construction oversight costs incurred in conjunction with the Partnership's capital improvement and major repair projects. The Partnership insures Wingfield Apartments under a master policy through an agency and insurer unaffiliated with the general partner. An affiliate of the general partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the general partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the general partner by virtue of the agent's obligations is not significant. 5. PARTNER TAX INFORMATION The following is a reconciliation between net loss as reported in the financial statements and Federal taxable loss allocated to the partners in the Partnership's information returns for the years ended December 31, 1996 and 1995:
1996 1995 -------- -------- Net loss as reported........................................ $(19,745) $(77,467) Add (deduct): Deferred revenue.......................................... (23,368) 9,165 Depreciation differences.................................. (7,297) 4,413 Accrued expenses.......................................... 300 4,400 Loss on disposals......................................... -- (1,135) -------- -------- Federal taxable loss........................................ $(50,110) $(60,624) ======== ======== Federal taxable loss per limited partnership unit........... $ (992) $ (1,200) ======== ========
F-22 4552 WINGFIELD INVESTORS LIMITED PARTNERSHIP (A KANSAS LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets at December 31, 1996 and 1995:
1996 1995 --------- -------- Net deficit as reported..................................... $(150,969) $(70,771) Differences in basis of assets and liabilities: Deferred revenue.......................................... 1,033 24,401 Accumulated depreciation.................................. (2,799) 4,498 Accrued expenses.......................................... 7,300 7,000 Syndication costs......................................... 102,577 102,577 --------- -------- Net assets -- tax basis..................................... $ (42,858) $ 67,705 ========= ========
F-23 4553 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 4554 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 4555 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 September , 1998 A-3 4556 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF WINROCK-HOUSTON 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-27 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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 apartment properties to holding an interest in our large portfolio of properties. - 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 4557 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 Winrock- Houston 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-58 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 4558
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 4559 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 Winrock-Houston 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 $3,054 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 4560 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 4561 - 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 $0.00 per unit 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). 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 small number of apartment 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. 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 S-3 4562 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 4563 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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. 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-5 4564 (This page intentionally left blank) S-6 4565 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. 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. 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 5 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. 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 S-7 4566 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. 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 Code. The particular tax consequences to you of the exchange 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 small number of apartment 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. S-8 4567 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 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 S-9 4568 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 4569 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, 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. 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 S-11 4570 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 35.40% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 4571 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 Preferred OP Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Preferred OP 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. 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." S-13 4572 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 4573 - 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 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 OF THIS S-15 4574 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 4575 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 4576 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, unlike the general partner of the AIMCO Operating Partnership, the partner of your partnership is entitled to compensation for its services as 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $50,000 beginning in 1988 (which was paid pro rata for October through December only), increasing annually at a rate of 6% beginning in 1989 for its services as general partner and may receive reimbursement for expenses generated in that capacity. The property manager received management fees of $449,997 in 1996 and $215,747 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 Your Partnership and its Property. Winrock-Houston Limited Partnership is a Delaware limited partnership which was formed on July 13, 1988 for the purpose of owning and operating a small number of apartment properties located in Houston, Texas, known as "Briarwest Apartments," "Briarwood Apartments," "Westgate Apartments" and "Barcelona Apartments". In 1987, it completed a private placement of units that raised net proceeds of approximately $25,000,000. Barcelona Apartments consists of 126 apart- S-18 4577 ment units, Briarwest Apartments consists of 380 apartment units, Briarwood Apartments consists of 351 apartment units and Westgate Apartments consists of 313 apartment units. Your partnership has no employees. Property Management. Since November 1997, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2037, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage notes outstanding on Barcelona Apartments of $2,404,552, Briarwest Apartments of $7,233,295 and Briarwood Apartments of $5,077,447 payable to IDS Life Insurance Co., which bear interest at a rate of 7.88%. Such mortgage notes are due February 2006. There is also a mortgage note on Westgate Apartments, the balance of which is $6,078,087, as of June 30, 1998. The note is payable to Reilly Mortgage Co., bears interest at 7.50% and is due February 2006. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 4578 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, 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 4579
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 4580 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 the exchange offers.
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............................. (6,634) (20,663) -------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) -------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) -------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- -------- --------- Net income........................................ $ 10,579 $ (38,135) ======== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 4581
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 4582 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)..................................... $ 10,579 $(38,135) 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........... 3,877 7,752 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............................ 60,297 104,471 Interest on convertible debentures.................... (5,012) (10,003) Preferred unit distributions.......................... (15,107) (30,214) -------- -------- Funds from operations................................. $121,674 $170,742 ======== ========
S-24 4583 SUMMARY FINANCIAL INFORMATION OF WINROCK-HOUSTON LIMITED PARTNERSHIP The summary financial information of Winrock-Houston Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Winrock-Houston 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 of Your Partnership" included herein. See "Index to Financial Statements." WINROCK-HOUSTON LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues......... 4,404,469 Not 8,314,000 7,638,000 7,416,230 7,019,722 6,596,187 Net Income/(Loss)............ 363,022 Available 244,000 (50,000) 935,508 1,141,954 1,038,110 Balance Sheet Data: Real Estate, Net of Accumulated Depreciation... 25,306,920 0 25,486,000 25,781,000 25,646,086 25,740,237 25,521,149 Total Assets........... 29,283,118 0 28,809,000 28,482,000 28,127,790 27,163,498 27,111,166 Mortgage Notes Payable, including Accrued Interest................... 20,813,052 0 20,956,000 21,262,000 2,554,817 2,820,038 1,507,634 Partners' Capital/(Deficit).......... 5,604,022 0 5,241,000 5,237,000 19,536,929 19,232,734 19,795,325
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $950.40
S-25 4584 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. 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 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 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, 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 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. S-26 4585 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 Code. 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 therefore 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 apartment 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 S-27 4586 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions with respect to the Common OP Units of $2.25, and the 1998 distributions of $0.00 with respect to your units, 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 S-28 4587 AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently own a 35.40% limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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). S-29 4588 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 OP Units rank equal to six other outstanding classes of Partnership Preferred Units. S-30 4589 - 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 4590 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 4591 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 4592 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. 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. S-34 4593 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." 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. 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. S-35 4594 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, (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 9:00 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 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, Denver, Colorado time. S-36 4595 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 4596 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. 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 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 S-38 4597 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 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 S-39 4598 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 4599 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. 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. 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-41 4600 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-42 4601 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 payment. 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 OP Units and any such S-43 4602 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-44 4603 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-45 4604 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-46 4605 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-47 4606 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-48 4607 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-49 4608 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 4609 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-51 4610 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 4611 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your property's physical condition, location and above-market mortgage interest rates. In addition, we considered the recent decline in 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 4612 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 4613 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 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, a third party expert, 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 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions of $2.25 with respect to the Common OP Units and the 1998 distributions of $0.00 with respect to your units, distributions with respect to the Preferred OP Units and Common OP Units being offered are expected to be , immediately following the 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 S-55 4614 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................................ Not available Estimated Liquidation Proceeds............................ $
S-56 4615 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 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-1 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 "-- Fairness Opinion -- 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-57 4616 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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 September 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 S-58 4617 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 property was 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 S-59 4618 value of the partnership's property 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 property 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 property 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'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-1. 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 $9,000 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-60 4619 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Briarwest Apartments, Briarwood Apartments, Partnership owns interests (either directly or through Westgate Apartments and Barcelona Apartments. 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 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 an interest The purpose of the AIMCO Operating Partnership is to as a general partner in Winrock-Houston Limited conduct any business that may be lawfully conducted by Partnership and to hold, own, maintain, sell, transfer, a limited partnership organized pursuant to the convey, exchange, otherwise dispose or deal in this Delaware Revised Uniform Limited Partnership Act (as partnership interest. Subject to restrictions contained amended from time to time, or any successor to such in your partnership's agreement of limited partnership, statute) (the "Delaware Limited Partnership Act"), your partnership may perform all acts necessary, provided that such business is to be conducted in a advisable or convenient to the business of your manner that permits AIMCO to be qualified as a REIT, 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-61 4620 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 250 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 In addition, the general partner may sell additional Unitholder. See "Description of OP Units -- Management limited partnership interests on such terms and by the AIMCO GP" in the accompanying Prospectus. conditions and the additional limited partners will Subject to Delaware law, any additional partnership have such rights and obligations as the general partner interests may be issued in one or more classes, or one determines; provided that general partner must first or more series of any of such classes, with such offer such interests to the original limited partners. designations, preferences and relative, partici- With the consent of the limited partners holding a pating, optional or other special rights, powers and majority of the units, the general partner may also duties as shall be determined by the general partner, sell other equity interests in your partnership, other in its sole and absolute discretion without the than units, which have such rights as the general approval of any OP Unitholder, and set forth in a partner may determine. 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 sets forth various contracts that your partnership has funds or other assets to its subsidiaries or other entered into with the general partner and its persons in which it has an equity investment, and such affiliates. The general partner and its affiliates may persons may borrow funds from the AIMCO Operating lend money to your partnership. Such loans will be Partnership, on terms and conditions established in the evidenced by promissory notes which bear interests at a sole and absolute discretion of the general partner. To commercially reasonably rate not in excess of the less the extent consistent with the business purpose of the of the maximum rate permitted by law and 3% above the AIMCO Operating Partnership and the permitted "base rate" of The First National Bank of Boston and be activities of the general partner, the AIMCO Operating subordinate to the obligation of your partnership to Partnership may transfer assets to joint ventures, pay unrelated creditors of your partnership, but have limited liability companies, partnerships, priority over distributions to partners. 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 or establish a lien of credit on the restrictions on borrowings, and the general partner has general credit of your partnership or secure any such full power and authority to borrow money on behalf of debt by mortgage, pledge or other lien on any of the the AIMCO Operating Partnership. The AIMCO Operating assets of your partnership, and to issue evidences of Partnership has credit agreements that restrict, among indebtedness in furtherance of any or all of the other things, its ability to incur indebtedness. See purposes of your partnership and to enter into any "Risk Factors -- Risks of Significant Indebtedness" in agreement necessary or advisable in connection with the accompanying Prospectus. such borrowing.
S-62 4621 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 or its duly authorized with a statement of the purpose of such demand and at representative to inspect the register containing the such OP Unitholder's own expense, to obtain a current names and interests owned by the partners at any list of the name and last known business, residence or reasonable time during normal business hours at the mailing address of the general partner and each other office of your partnership. OP Unitholder.
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, your 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 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 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 who perform services on behalf of partner is not liable to the AIMCO Operating your partnership will not incur any liability, Partnership for losses sustained, liabilities incurred responsibility or accountability for damages or or benefits not derived as a result of errors in otherwise to your partnership or any limited partner judgment or mistakes of fact or law of any act or arising out of any acts performed or any omission by omission if the general partner acted in good faith. any of them if they believed in good faith that such The AIMCO Operating Partnership Agreement provides for act or omission was in the best interests of your indemnification of AIMCO, or any director or officer of partnership and such course of conduct did not AIMCO (in its capacity as the previous general partner constitute negligence or misconduct on the part of the of the AIMCO Operating Partnership), the general such person. In addition, your partnership will partner, any officer or director of general partner or indemnify and save harmless the general partner and its the AIMCO Operating Partnership and such other persons affiliates who perform services on behalf of your as the general partner may designate from and against partnership against any loss, damage, liability, cost all losses, claims, damages, liabilities, joint or or expenses (including reasonable attorneys' fees) several, expenses (including legal fees), fines, incurred by them in connection with your partnership settlements and other amounts incurred in connection provided that they have determined in good faith that with any actions relating to the operations of the the course of conduct which caused the loss, damage, AIMCO Operating Partnership, as set forth in the AIMCO liability, cost or expense was in the best interests of Operating Partnership Agreement. The Delaware Limited your partnership and was not the result of negligence Partnership Act provides that subject to the standards or misconduct on the part of such persons. Such and restrictions, if any, set forth in its partnership indemnity will be paid from, an only to the extent of, agreement, a limited partnership may, and shall have partnership assets. However, the general partner, its the power to, indemnify and hold harmless any partner affiliates and any placing broker will be liable and or other not
S-63 4622 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP be indemnified from any loss, damage or cost resulting person from and against any and all claims and demands form the violation of any Federal or state securities whatsoever. It is the position of the Securities and law in connection with the sale of units unless (i) Exchange Commission that indemnification of directors there has been a successful adjudication on the merits and officers for liabilities arising under the of each count involving such securities law violation Securities Act is against public policy and is and the court approves the indemnification of unenforceable pursuant to Section 14 of the Securities litigation costs, (ii) such claims have been dismissed Act of 1933. with prejudice on the merits by a court of competent jurisdiction and the court approves the indemnification of litigation costs or (iii) a court of competent jurisdiction approves a settlement of such claim and the court approves the indemnification of litigation costs. In such claim for indemnification for Federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect of 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 the vote of the limited partners holding affairs of the AIMCO Operating Partnership. The general more than 50% of the then outstanding units. A general partner may not be removed as general partner of the partner may withdraw voluntarily from your partnership AIMCO Operating Partnership by the OP Unitholders with only if another general partner remains or is elected. or without cause. Under the AIMCO Operating Partnership The general partner may admit any person as an Agreement, the general partner may, in its sole additional or substitute general partner pursuant to discretion, prevent a transferee of an OP Unit from the consent granted by the limited partners in your becoming a substituted limited partner pursuant to the partnership's agreement of limited partnership. A AIMCO Operating Partnership Agreement. The general limited partner may not transfer his interests without partner may exercise this right of approval to deter, the consent of the 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 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 upon approval by the limited partners owning in the AIMCO Operating Partnership Agreement, whereby more than 50% of the units and the general partner. No the general partner may, without the consent of the OP amendment may be adopted which affect the obligation of Unitholders, amend the AIMCO Operating Partnership the limited partners to make their required capital Agreement, amendments to the AIMCO Operating contribution or affect the timing or amount of the fees Partnership Agreement require the consent of the paid by your partnership under your partnership's holders of a majority of the outstanding Common OP agreement of limited partnership. Any amendment which Units, excluding AIMCO and certain other limited adversely affects the rights of a specific partner must exclusions (a "Majority in Interest"). Amendments to be approved by such affected partner. Amendments which the AIMCO Operating Partnership Agreement may be increase the amount of or accelerates the date of proposed by the general partner or by holders of a payment for capital contributions required to be paid Majority in Interest. Following such proposal, the by limited partners, extends the termination date of general partner will submit any proposed amendment to your partnership, adversely affects the rights of the OP Unitholders. The general partner will seek the limited partners or amends the amendment provisions written consent of the OP Unitholders on the proposed required the consent of all limited partners. The amendment or will call a meeting to vote thereon. See general partner may amend your partnership's agreement "Description of OP Units -- Amendment of the AIMCO of limited partnership without the consent of the Operating Partnership Agreement" in the accompanying limited partners to comply with the applicable laws and Prospectus. correct any ambiguities.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives $50,000 beginning in 1988 (which was paid pro capacity as general partner of the AIMCO Operating rata for October through December only), increasing Partnership. In addition, the AIMCO Operating Part- annually at
S-64 4623 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP a rate of 6% beginning in 1989 and may receive other nership is responsible for all expenses incurred fees for additional services. Moreover, the general relating to the AIMCO Operating Partnership's ownership partner or certain affiliates may be entitled to of its assets and the operation of the AIMCO Operating compensation for additional services rendered. 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, contacts 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 its 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 has been fully paid, no ment in the AIMCO Operating Partnership. However, the limited partner, except as otherwise required by limitations on the liability of limited partners for applicable law, is required to make any further capital the obligations of a limited partnership have not been contributions or to make loans 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, 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 at all times has any transaction as to which it has a conflict of a fiduciary responsibility for the safekeeping and use interest. The AIMCO Operating Partnership Agreement of all partnership funds and assets. The general expressly authorizes the general partner to enter into, partner and its affiliates may engage in or possess an on behalf of the AIMCO Operating Partnership, a right interest in other business ventures of every nature and of first opportunity arrangement and other conflict description, including without limitation, real estate avoidance agreements with various affiliates of the business ventures, whether or not such other AIMCO Operating Partnership and the general partner, on enterprises are in competition with any activities of such terms as the general partner, in its sole and 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 4624 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, the general applicable law or in the AIMCO ship Agreement, the OP Unitholders partner, with the consent of the Operating Partnership Agreement, have voting rights only with limited partners may continue the the holders of the Preferred OP respect to certain limited matters business of your part- Units will have the same such as certain amend-
S-66 4625 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS nership after the sale of all or voting rights as holders of the ments and termination of the AIMCO substantially or the assets solely Common OP Units. See "Description Operating Partnership Agreement and for the purpose of receiving and of OP Units" in the accompanying certain transactions such as the collecting notes received in Prospectus. So long as any institution of bankruptcy consideration of your partnership's Preferred OP Units are outstand- proceedings, an assignment for the assets, dissolve your partnership ing, in addition to any other vote benefit of creditors and certain and admit an addition or substitute or consent of partners required by transfers by the general partner of general partner. The consent of a law or by the AIMCO Operating its interest in the AIMCO Operating limited partner will be deemed to Partnership Agreement, the Partnership or the admission of a be granted if it does not refuse to affirmative vote or consent of successor general partner. consent in writing within thirty holders of at least 50% of the days after it received notice outstanding Preferred OP Units will Under the AIMCO Operating Partner- requesting its consent. The holders be necessary for effecting any ship Agreement, the general partner of a majority of the outstanding amendment of any of the provisions has the power to effect the units may also remove the general of the Partnership Unit Desig- acquisition, sale, transfer, partner, amend your partnership's nation of the Preferred OP Units exchange or other disposition of agreement of limited partnership, that materially and adversely any assets of the AIMCO Operating subject to certain exceptions, affects the rights or preferences Partnership (including, but not approve or disapprove the sale of of the holders of the Preferred OP limited to, the exercise or grant all or substantially all of the Units. The creation or issuance of of any conversion, option, assets of your partnership and any class or series of partnership privilege or subscription right or terminate your partnership before units, including, without any other right available in the expiration of its term. limitation, any partnership units connection with any assets at any that may have rights senior or time held by the AIMCO Operating A general partner may cause the superior to the Preferred OP Units, Partnership) or the merger, dissolution of the your partnership shall not be deemed to materially consolidation, reorganization or by retiring. In such event, a adversely affect the rights or other combination of the AIMCO remaining general partner may preferences of the holders of Operating Partnership with or into continue your partnership, in its Preferred OP Units. With respect to another entity, all without the sole discretion. If there is no the exercise of the above de- consent of the OP Unitholders. remaining general partner or the scribed voting rights, each remaining general partner elects Preferred OP Units shall have one The general partner may cause the not to continue your partnership, (1) vote per Preferred OP Unit. dissolution of the AIMCO Operating the limited partners may, within 90 Partnership by an "event of days after the retirement of the withdrawal," as defined in the general partner, elect to continue Delaware Limited Partnership Act your partnership's business by (including, without limitation, selecting a substitute general bankruptcy), unless, within 90 days partner by unanimous written after the withdrawal, holders of a consent. "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 Flow 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 as de- and from time to time on or after in its sole and absolute discretion termined by the general partner, the fifth anniversary of the issue determine, of Available Cash (as and in any event shall be made date of the Preferred OP Units, the defined in the AIMCO Operating within 60 days after the close of AIMCO Operating Partnership may Partnership Agreement) generated by each fiscal year. 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-67 4626 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. Your with a maturity of five years, and general partner with respect to partnership has made distributions (ii) the annual dividend rate on such quarter, in accordance with in the past and is projected to the most recently issued AIMCO their respective interests in the made distributions in 1998. 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 who is not a Preferred OP Units and the OP Units. The AIMCO Operating Part- minor, except in limited Preferred OP Units are not listed nership Agreement restricts the circumstances, or an incompetent on any securities exchange. The transferability of the OP Units. and such person will become a Preferred OP Units are subject to Until the expiration of one year substitute limited partner if: (1) restrictions on transfer as set from the date on which an OP such transfer is of at least 1/2 forth in the AIMCO Operating Unitholder acquired OP Units, unit, except in limited circum- Partnership Agreement. subject to certain exceptions, such stances, (2) a transfer application OP Unitholder may not transfer all has been completed by the assignor Pursuant to the AIMCO Operating or any portion of its OP Units to and assignee, (3) the approval of Partnership Agreement, until the any transferee without the consent the general partner which may be expiration of one year from the of the general partner, which withheld in the sole and absolute date on which a holder of Preferred consent may be withheld in its sole discretion of the general partner OP Units acquired Preferred OP and absolute discretion. After the has been granted, (4) the transfer, Units, subject to certain expiration of one year, such OP when added to all other assignments exceptions, such holder of Unitholder has the right to within the preceding twelve months Preferred OP Units may not transfer transfer all or any portion of its ending on the date of the proposed all or any portion of its Pre- OP Units to any assign- ferred OP Units to any transferee without
S-68 4627 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ment would not result in the the consent of the general partner, person, subject to the satisfaction termination of your partnership which consent may be withheld in of certain conditions specified in under the tax code, (5) if required its sole and absolute discretion. the AIMCO Operating Partnership by the general partner, the After the expiration of one year, Agreement, including the general assignor or the assignee pays all such holders of Preferred OP Units partner's right of first refusal. costs and fees associated with the has the right to transfer all or See "Description of OP Units -- transaction, (6) the transfer any portion of its Preferred OP Transfers and Withdrawals" in the complies all applicable law, Units to any person, subject to the accompanying Prospectus. including Federal and state satisfaction of certain conditions securities laws, (7) the transfer specified in the AIMCO Operating After the first anniversary of of the interest is not smaller than Partnership Agreement, including becoming a holder of Common OP $20,000 or would cause your the general partner's right of Units, an OP Unitholder has the partnership to possess the first refusal. right, subject to the terms and characteristic of "free conditions of the AIMCO Operating transferability of interests" under After a one-year holding period, a Partnership Agreement, to require the Treasury Regulations and (8) holder may redeem Preferred OP the AIMCO Operating Partnership to the assignor and assignee have Units and receive in exchange redeem all or a portion of the complied with such other conditions therefor, at the AIMCO Operating Common OP Units held by such party as set forth in your partnership's Partnership's option, (i) subject in exchange for a cash amount based agreement of limited partnership. 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 There are no redemption rights Liquidation Preference of the OP Units -- Redemption Rights" in associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 4628 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $50,000 beginning in 1988 (which was paid pro rata for October through December only), increasing annually at a rate of 6% beginning in 1989 in its capacity as general partner of your partnership and may receive reimbursement for expenses generated in such capacity. The property manager received management fees of $449,997 in 1996 and $215,747 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's 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'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 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-70 4629 YOUR PARTNERSHIP GENERAL Winrock-Houston Limited Partnership is a Delaware limited partnership which raised net proceeds of approximately $25,000,000 in 1987 through a private offering. The promoter for the private offering of your partnership was Winthrop Securities Co., Inc. Insignia acquired your partnership in November 1997. AIMCO acquired Insignia in October, 1998. There are currently a total of 159 limited partners of your partnership and a total of 250 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the small number of apartment properties described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on July 13, 1988 for the purpose of owning and operating a small number of apartment properties located in Houston, Texas, known as "Briarwest Apartments," "Briarwood Apartments," "Westgate Apartments" and "Barcelona Apartments". In Barcelona Apartments, there are 126 apartment units. The total rentable square footage is 115,591 square feet and the average annual rent per apartment unit is $6,639. There are 380 apartment units in Briarwest Apartments. The total rentable square footage is 344,405 square feet and the average annual rent per apartment unit is $6,446. Briarwood Apartments has 351 apartment units. The total rentable square footage is 280,705 square feet. The average annual rent per apartment unit is $6,595. In Westgate Apartments, there are 313 apartment units. The total rentable square footage is 279,101 square feet and the average annual rent per apartment unit is $7,324. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1997, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996 and the first six months of 1998 were $449,997 and $215,747, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2037 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. S-71 4630 An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage notes outstanding on Barcelona Apartments of $2,404,552, Briarwest Apartments of $7,233,295 and Briarwood Apartments of $5,077,447 payable to IDS Life Insurance Co., which bear interest at a rate of 7.88%. Such mortgage notes are due February 2006. There is also a mortgage note on Westgate Apartments, the balance of which is $6,078,087, as of June 30, 1998. The note is payable to Reilly Mortgage Co., bears interest at 7.50% and is due February 2006. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. The audited financial statements have been audited by Imowitz Koenig & Co. LLP. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 4631 Below is selected financial information for Winrock-Houston Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
WINROCK-HOUSTON LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 1,000,132 Not $ 624,000 $ 314,000 $ 564,552 $ 533,555 $ 658,363 Land & Building.............. 33,421,123 Available 33,029,000 32,140,000 30,945,863 30,036,882 28,886,710 Accumulated Depreciation..... (8,114,203) 0 (7,543,000) (6,359,000) (5,299,777) (4,296,645) (3,365,561) Other Assets................. 2,976,066 0 2,699,000 2,387,000 1,917,152 889,706 931,654 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $29,283,118 $ 0 $28,809,000 $28,482,000 $28,127,790 $27,163,498 $27,111,166 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... 20,813,052 20,956,000 21,262,000 2,554,817 2,820,038 1,507,634 Other Liabilities............ 1,692,582 1,545,000 927,000 1,399,361 603,856 1,370,878 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... $22,505,634 $ 0 $22,501,000 $22,189,000 $ 3,954,178 $ 3,423,894 $ 2,878,512 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Minority Interest............ 1,173,462 1,067,000 1,056,000 4,636,683 4,506,870 4,437,329 Partners Capital (Deficit)... $ 5,604,022 $ $ 5,241,000 $ 5,237,000 $19,536,929 $19,232,734 $19,795,325 =========== =========== =========== =========== =========== =========== ===========
WINROCK-HOUSTON LIMITED PARTNERSHIP ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue..................... $4,195,839 $ $7,939,000 $7,326,000 $7,096,732 $6,987,599 $6,578,189 Other Income....................... 208,630 375,000 312,000 319,498 32,123 17,998 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. $4,404,469 $ 0 $8,314,000 $7,638,000 $7,416,230 $7,019,722 $6,596,187 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 1,871,786 3,967,000 3,636,000 3,469,641 3,347,965 3,482,324 General & Administrative........... 217,194 371,000 439,000 769,923 367,896 241,560 Depreciation....................... 611,850 1,184,000 1,080,000 1,044,112 933,675 743,821 Interest Expense................... 867,215 1,729,000 1,722,000 249,645 209,503 105,913 Property Taxes..................... 367,436 704,000 661,000 641,957 682,996 674,386 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ $3,935,481 $ 0 $7,955,000 $7,538,000 $6,175,278 $5,542,035 $5,248,004 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income......................... $ 468,988 $ 0 $ 359,000 $ 100,000 $1,240,952 $1,477,687 $1,348,183 ========== ========== ========== ========== ========== ========== ========== Minority Interest.................. 105,966 115,000 150,000 305,444 335,733 310,073 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income......................... $ 363,022 $ 0 $ 244,000 $ (50,000) $ 935,508 $1,141,954 $1,038,110 ========== ========== ========== ========== ========== ========== ==========
S-73 4632 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Due to this partnership being a recent acquisition, very little discussion is available for variances. Results of Operations Six Months Ended June 30, 1998 Due to this partnership being a recent acquisition, no data was available for the six months ended June 30, 1997. Net Income Your Partnership recognized net income of $1,871,786 for the six months ended June 30, 1998. Revenues Rental and other property revenues from the partnership's property totaled $4,404,469 for the six months ended June 30, 1998. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,871,786 for the six months ended June 30, 1998. Management expenses totaled $215,747 for the six months ended June 30, 1998. General and Administrative Expenses General and administrative expenses totaled $217,194 for the six months ended June 30, 1998. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $867,215 for the six months ended June 30, 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $244,000 for the year ended December 31, 1997, compared to a net loss of $50,000 for the year ended December 31, 1996. The increase in net income of $294,000 was primarily the result of an increase in revenues, offset by an increase in operating expenses. Revenues Rental and other property revenues from the partnership's property totaled $8,314,000 for the year ended December 31, 1997, compared to $7,638,000 for the year ended December 31, 1996, an increase of $676,000, or 8.85% due mainly to an increase in rental rates at the partnership's four properties Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $3,967,000 for the year ended December 31, 1997, compared to $3,636,000 for the year ended December 31, 1996, an increase of $331,000 or 9.10%. Management expenses totaled $407,000 for the year ended December 31, 1997, compared to $377,000 for the year ended December 31, 1996, an increase of $30,000, or S-74 4633 7%. The increase is due to the increase in rental revenue, as management fees are calculated based on a percentage of revenue. The increase in operating expenses is due to increased utility costs at Briarwest and increased payroll related costs at all of the partnership's properties. General and Administrative Expenses General and administrative expenses totaled $371,000 for the year ended December 31, 1997 compared to $439,000 for the year ended December 31, 1996, a decrease of $68,000 or 15.49%. This decrease is primarily attributable to higher than normal legal fees during 1996. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,729,000 for the year ended December 31, 1997, compared to $1,722,000 for the year ended December 31, 1996, an increase of $7,000, or .41%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $50,000 for the year ended December 31, 1996, compared to net income of $935,508 for the year ended December 31, 1995. The decrease in net income of $985,261, or 105.32% was primarily the result of an increase in interest expense. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $7,638,000 for the year ended December 31, 1996, compared to $7,416,230 for the year ended December 31, 1995, an increase of $221,731, or 2.99%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $3,636,000 for the year ended December 31, 1996, compared to $3,469,641 for the year ended December 31, 1995, an increase of $166,359 or 4.79%. Management expenses totaled $377,058 for the year ended December 31, 1996, compared to $364,696 for the year ended December 31, 1995, an increase of $12,362, or 3.39%. General and Administrative Expenses General and administrative expenses totaled $439,000 for the year ended December 31, 1996 compared to $769,923 for the year ended December 31, 1995, a decrease of $330,923 or 42.98%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,722,000 for the year ended December 31, 1996, compared to $249,645 for the year ended December 31, 1995, an increase of $1,472,355, or 589.78%. The increase is attributable to the partnership securing approximately $19 million of new debt during 1996. Liquidity and Capital Resources As of June 30, 1998, your partnership had $1,000,132 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on S-75 4634 outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 who perform services on behalf of your partnership will not incur any liability, responsibility or accountability for damages or otherwise to your partnership or any limited partner arising out of any acts performed or any omission by any of them if they believed in good faith that such act or omission was in the best interests of your partnership and such course of conduct did not constitute negligence or misconduct on the part of the 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 owned by AIMCO. See "Conflicts of Interest". Your partnership will indemnify and save harmless the general partner and its affiliates who perform services on behalf of your partnership against any loss, damage, liability, cost or expenses (including reasonable attorneys' fees) incurred by them in connection with your partnership provided that they have determined in good faith that the course of conduct which caused the loss, damage, liability, cost or expense was in the best interests of your partnership and was not the result of negligence or misconduct on the part of such persons. Such indemnity will be paid from, an only to the extent of, partnership assets. However, the general partner, its affiliates and any placing broker will be liable and not be indemnified from any loss, damage or cost resulting form the violation of any Federal or state securities law in connection with the sale of units unless (i) there has been a successful adjudication on the merits of each count involving such securities law violation and the court approves the indemnification of litigation costs, (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction and the court approves the indemnification of litigation costs or (iii) a court of competent jurisdiction approves a settlement of such claim and the court approves the indemnification of litigation costs. In such claim for indemnification for Federal or state securities law violation, the party seeking indemnification must place before the court the position of the SEC and any other applicable regulatory agency with respect of the issue of indemnification for securities law violations. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. The original cost per unit was $500,000.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 6,750.00 1995........................................................ 2,500.00 1996........................................................ 56,990.00 1997........................................................ 950.40 1998 (through June 30)...................................... 0.00
S-76 4635 Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ $ 70,926 1995........................................................ 75,182 1996........................................................ 258,000 1997........................................................ 244,000 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $ 439,878 1996........................................... 449,997 1997........................................... Unavailable 1998 (through June 30)......................... 215,747
If the offer had been made in such prior periods, there would not have been any material difference in the compensation and distributions that would have been paid to the general partner of your partnership, or the company paid to the property manager or AIMCO and its affiliates. S-77 4636 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 audited financial statements of Winrock-Houston Limited Partnership at December 31, 1997, December 31, 1996, December 31, 1995, December 31, 1994 and December 31, 1993 and for the years then ended, appearing in this Prospectus Supplement have been audited by Imowitz Koenig & Co. LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-78 4637 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statement of Operations for the six months ended June 30, 1998 (unaudited)................................. F-3 Condensed Statement of Cash Flows for the six months ended June 30, 1998 (unaudited)................................. F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors Report................................. F-8 Consolidated Balance Sheets as of December 31, 1997 and 1996...................................................... F-9 Consolidated Statements of Operations for the years ended December 31, 1997 and 1996................................ F-10 Consolidated Statements of Changes in Partners' Equity for the years ended December 31, 1997 and 1996................ F-11 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996................................ F-12 Notes to Consolidated Financial Statements.................. F-13 Independent Auditors Report................................. F-19 Consolidated Balance Sheets as of December 31, 1996 and 1995...................................................... F-20 Consolidated Statements of Operations for the years ended December 31, 1996 and 1995................................ F-21 Consolidated Statements of Changes in Partners' Equity for the years ended December 31, 1996 and 1995................ F-22 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995................................ F-23 Notes to Consolidated Financial Statements.................. F-24
F-1 4638 WINROCK -- HOUSTON LIMITED PARTNERSHIP CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 1,000,132 Receivables and Deposits.................................... 1,248,780 Restricted Escrows.......................................... 493,445 Other Assets................................................ 1,233,841 Investment Property: Land...................................................... 8,428,828 Building and related personal property.................... 24,992,295 ----------- 33,421,123 Less: Accumulated depreciation............................ (8,114,203) 25,306,920 ----------- ----------- Total Assets...................................... $29,283,118 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 107,819 Other Accrued Liabilities................................... 297,417 Property taxes payable...................................... 1,076,972 Tenant security deposits.................................... 210,374 Notes Payable............................................... 20,813,052 Minority Interest........................................... 1,173,462 Partners' Capital........................................... 5,604,022 ----------- Total Liabilities and Partners' Capital........... $29,283,118 ===========
F-2 4639 WINROCK -- HOUSTON LIMITED PARTNERSHIP CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Revenues: Rental Income............................................. $4,195,839 Other Income.............................................. 208,630 ---------- Total Revenues.................................... 4,404,469 Expenses: Operating Expenses........................................ 1,871,786 General and Administrative Expenses....................... 217,194 Depreciation Expense...................................... 611,850 Interest Expense.......................................... 867,215 Property Tax Expense...................................... 367,436 ---------- Total Expenses.................................... 3,935,481 Income (Loss) from Operations............................... 468,988 Minority Interest........................................... (105,966) ---------- Net Income (Loss)................................. $ 363,022 ==========
F-3 4640 WINROCK -- HOUSTON LIMITED PARTNERSHIP CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Operating Activities: Net Income (loss)......................................... $ 363,022 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 611,850 Receivables and deposits and other assets.............. (297,587) Accounts Payable and accrued expenses.................. 147,582 ---------- Net cash provided by (used in) operating activities........................................ 824,867 ---------- Investing Activities Property improvements and replacements.................... (412,804) Net (increase)/decrease in restricted escrows............. 555 ---------- Net cash provided by (used in) investing activities........................................ (412,249) ---------- Financing Activities Payments on mortgage...................................... (142,948) Minority Interest......................................... 106,462 ---------- Net cash provided by (used in) financing activities........................................ (36,486) ---------- Net increase (decrease) in cash and cash equivalents....................................... 376,132 Cash and cash equivalents at beginning of year.............. 624,000 ---------- Cash and cash equivalents at end of period.................. $1,000,132 ==========
F-4 4641 WINROCK-HOUSTON LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Winrock-Houston Limited Partnership as of June 30, 1998 and for the six months ended June 30, 1998 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 4642 WINROCK-HOUSTON LIMITED PARTNERSHIP CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND 1996 F-6 4643 WINROCK-HOUSTON LIMITED PARTNERSHIP YEARS ENDED DECEMBER 31, 1997 AND 1996 TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-8 Consolidated Financial Statements: Balance Sheets............................................ F-9 Statements of Operations.................................. F-10 Statements of Partners' Equity............................ F-11 Statements of Cash Flows.................................. F-12 Notes to Financial Statements............................. F-13
F-7 4644 INDEPENDENT AUDITORS' REPORT To the Partners of Winrock-Houston Limited Partnership: We have audited the accompanying consolidated balance sheets of Winrock-Houston Limited Partnership (the "Partnership") as of December 31, 1997 and 1996, and the related consolidated statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Winrock-Houston Limited Partnership as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ IMOWITZ KOENIG & CO., LLP Certified Public Accountants New York, New York February 16, 1998 F-8 4645 WINROCK-HOUSTON LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS
DECEMBER 31, ----------------- 1997 1996 ------- ------- Investment Properties: Land...................................................... $ 8,429 $ 8,429 Buildings and related personal property................... 24,600 23,711 ------- ------- 33,029 32,140 Less: accumulated depreciation............................ 7,543 6,359 ------- ------- 25,486 25,781 Cash and cash equivalents................................... 624 314 Receivables and deposits.................................... 943 294 Restricted escrows.......................................... 494 630 Other assets................................................ 1,262 1,463 ------- ------- Total assets...................................... $28,809 $$28,482 ======= ======= LIABILITIES AND PARTNERS' EQUITY Liabilities: Mortgage payable.......................................... $20,956 $21,262 Accounts payable.......................................... 223 269 Accrued property taxes.................................... 711 -- Other liabilities......................................... 249 297 Fees payable to affiliates................................ 146 155 Tenants' security deposits payable........................ 216 206 ------- ------- Total liabilities................................. 22,501 22,189 ------- ------- Minority Interest........................................... 1,067 1,056 ------- ------- Partners' Equity: Investor limited partners' equity -- 250 units authorized and outstanding........................................ 6,144 6,140 General partner's (deficit)............................... (903) (903) ------- ------- Total partners' equity............................ 5,241 5,237 ------- ------- Total liabilities and partners' equity............ $28,809 $28,482 ======= =======
See notes to consolidated financial statements F-9 4646 WINROCK-HOUSTON LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT UNIT DATA)
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 -------- -------- Revenues: Rental income............................................. $7,939 $7,326 Other income.............................................. 375 312 ------ ------ Total revenues.................................... 8,314 7,638 ------ ------ Expenses: Operating................................................. 3,967 3,636 General and administrative................................ 371 439 Depreciation and goodwill amortization.................... 1,184 1,080 Interest.................................................. 1,729 1,722 Property taxes............................................ 704 661 ------ ------ Total expenses.................................... 7,955 7,538 ------ ------ Net income before minority interest......................... 359 100 Minority interest in operating partnership's income......... (115) (150) ------ ------ Net income (loss)................................. $ 244 $ (50) ====== ====== Net income (loss) allocated to general partners............. $ 2 $ (1) Net income (loss) allocated to investor limited partners.... 242 (49) ------ ------ $ 244 $ (50) ====== ====== Net income (loss) per limited partnership unit.... $ 968 $ (196) ====== ======
See notes to consolidated financial statements F-10 4647 WINROCK-HOUSTON LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY YEARS ENDED DECEMBER 31, 1997 AND 1996 (IN THOUSANDS, EXCEPT UNIT DATA)
LIMITED INVESTOR GENERAL PARTNERSHIP PARTNERS' PARTNER'S UNITS EQUITY (DEFICIT) TOTAL ----------- --------- --------- -------- Balance -- December 31, 1995........................ 250 $ 20,296 $(759) $ 19,537 Distributions to partners......................... -- (14,107) (143) (14,250) Net (loss)........................................ -- (49) (1) (50) --- -------- ----- -------- Balance -- December 31, 1996........................ 250 6,140 (903) 5,237 Distributions to partners......................... -- (238) (2) (240) Net income........................................ -- 242 2 244 --- -------- ----- -------- Balance -- December 31, 1997........................ 250 $ 6,144 $(903) $ 5,241 === ======== ===== ========
See notes to consolidated financial statement F-11 4648 WINROCK-HOUSTON LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 -------- ---------- Cash Flows from Operating Activities: Net income (loss)......................................... $ 244 $ (50) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation........................................... 1,184 1,060 Amortization of goodwill and deferred costs............ 67 114 Minority interest in operating partnership's income.... 115 150 Change in accounts: Receivables and deposits............................. (649) 390 Other assets......................................... 134 11 Due from affiliate................................... -- 177 Fees payable to affiliates........................... (9) 7 Accounts payable..................................... (46) (142) Accrued property taxes............................... 711 (459) Other liabilities.................................... (48) 85 Tenants' security deposits payable................... 10 16 ------ -------- Net cash provided by operating activities......... 1,713 1,359 ------ -------- Cash Flows from Investing Activities: Property improvements and replacements.................... (889) (1,194) Net withdrawals (deposits) to restricted escrows for property replacements.................................. 136 (630) ------ -------- Net cash used in investing activities............. (753) (1,824) ------ -------- Cash Flows from Financing Activities: Repayment of loan payable................................. -- (2,555) Proceeds from mortgage payable............................ -- 21,500 Payments on mortgage payable.............................. (306) (237) Deferred costs............................................ -- (618) Distributions to partners................................. (240) (14,250) Distribution to minority interest......................... (104) (3,731) ------ -------- Net cash (used in) provided by financing activities...................................... (650) 109 ------ -------- Net increase (decrease) in cash and cash equivalents........ 310 (356) Cash and cash equivalents, beginning of year................ 314 670 ------ -------- Cash and cash equivalents, end of year...................... $ 624 $ 314 ====== ======== Supplemental Disclosure of Cash Flow Information: Interest Paid in Cash..................................... $1,664 $ 1,555 ====== ========
See notes to consolidated financial statements F-12 4649 WINROCK-HOUSTON LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 NOTE 1 -- ORGANIZATION Winrock-Houston Limited Partnership (the "Partnership") was formed on July 21, 1988 under the laws of the State of Delaware for the purpose of acquiring a general and limited partnership interest in Winrock-Houston Associates Limited Partnership, a Delaware limited partnership (the "Operating Partnership"). The Operating Partnership was formed to acquire, renovate and operate four separate, but nearly contiguous, apartment complexes located in Houston, Texas (the "Properties"). The Partnership owns a combined 80% general and limited partnership interest in the Operating Partnership. Winrock-Houston Joint Venture, a Maryland general partnership, owns a combined 20% general and limited partnership interest in the Operating Partnership. The general partner of the Partnership is First Winthrop Corporation ("FWC" or the "General Partner"). The Partnership will terminate on December 31, 2037, or earlier upon the occurrence of certain events specified in the partnership agreement. On October 28, 1997, Insignia Financial Group, Inc. ("Insignia") acquired 100% of the Class B stock of FWC. Pursuant to this transaction, Insignia has the right to appoint the members of a Residential Committee. The Residential Committee effectively controls the activities of the Partnership. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include the accounts of the Partnership and the Operating Partnership prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Winrock-Houston Joint Venture's ownership interest in the Operating Partnership has been reflected as a minority interest in the accompanying consolidated balance sheets and statements of operations. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Investment Properties Investment properties are stated at cost. The Operating Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Depreciation The Partnership and the Operating Partnership depreciate real property using the straight-line method over a 40-year recovery period. Personal property is depreciated based on its estimated useful life ranging between 5 and 12 years. Cash and Cash Equivalents The Partnership considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. At December 31, 1997, cash and cash equivalents consisted primarily of shares of a money market fund. F-13 4650 WINROCK-HOUSTON LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred Costs Financing costs and deferred fees are capitalized and amortized using the straight-line method over the terms of the related agreements. Financing costs are amortized as interest expense. As of December 31, 1997 and 1996, unamortized deferred costs of approximately $540,000 and $607,000, respectively, are included in other assets. Goodwill Goodwill is amortized using the straight-line method over 40 years. As of December 31, 1997 and 1996, unamortized goodwill of approximately $635,000 is included in other assets. Leases The Operating Partnership generally leases apartment units for twelve-month terms or less. The Partnership recognizes income as earned on its leases. Security deposits The Operating Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Advertising The Operating Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $114,000 and $89,000, for the years ended December 31, 1997 and 1996, respectively. Income Taxes Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Allocation of Profits, Losses and Cash Distributions In accordance with the partnership agreement, cash available for distribution is distributed 99% to the investor limited partners and 1% to FWC, the general partner, until the investor limited partners have received a 6% noncumulative, simple annual rate of return on their invested capital, at which point the remainder will be distributed 97% to the investor limited partners and 3% to FWC. Distributions of cash other than cash flow shall be distributed in accordance with the partnership agreement with no less than 1% allocated to the general partner. Income shall be allocated to the partners in proportion to the cash available for distribution that is distributable to the partners; losses shall be allocated 99% to the investor limited partners and 1% to FWC. If there is no such cash available for distribution, income will be allocated 97% to the investor limited partner and 3% to the general partner. Reclassifications Certain amounts from 1996 have been reclassified to conform to the 1997 presentation. NOTE 3 -- DISTRIBUTIONS The Partnership distributed approximately $238,000 ($952 per unit) to the Limited Partners and approximately $2,000 to the general partner during the year ended December 31, 1997. F-14 4651 WINROCK-HOUSTON LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) For the year ended December 31, 1996, the Partnership distributed approximately $14,248,000 ($56,992 per unit) to the Limited Partners. The general partner was entitled to $142,500 for the year ended December 31, 1996, but received only $2,500. The $140,000 underpayment will be paid in future distributions. The distributions in 1996 were primarily from the net proceeds received from the mortgage refinancing. NOTE 4 -- TAXABLE INCOME (LOSS) The following summarizes the differences between the Partnership's taxable income (loss) for 1997 and 1996, and the Partnership's net income (loss) for financial reporting purposes:
1997 1996 --------- --------- Net income (loss) for financial reporting purposes.......... $ 244,000 $ (50,000) Accelerated depreciation on real and personal property...... (107,000) (117,000) Other....................................................... 25,000 (18,000) --------- --------- Taxable income (loss)............................. $ 162,000 $(185,000) ========= =========
NOTE 5 -- RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all partnership activities. The Partnership paid property management fees based upon 5% of collected gross rental revenues for property management services. The partnership agreement provides for reimbursement to the General Partner and its affiliates for costs incurred in connection with the administration of Partnership activities. The Partnership pays an annual partnership administrative and investor service fee of $50,000, which, since 1989, has been increased annually by 6% to its present level of $84,000. In addition, the Partnership pays an annual asset management fee equal to 1% of collected gross rental revenues. The General Partner and its affiliates received reimbursements and fees as reflected in the following table:
FOR THE YEARS ENDED DECEMBER 31, ------------------- 1997 1996 -------- -------- Property management fees.................................... $407,000 $377,000 Reimbursements for services................................. 160,000 178,000 Partnership administrative and investor service fee......... 84,000 80,000 Asset management fee........................................ 81,000 75,000
Property management fees are included in operating expenses. Reimbursements for services, partnership administrative and investor service, and asset management fees are primarily included in general and administrative expenses. In addition, a $161,000 fee paid to an affiliate of the General Partner, relating to the 1996 mortgage refinancing has been capitalized and is being amortized as interest expense. At December 31, 1997 and 1996, the General Partner is due approximately $146,000 and $155,000, respectively, in unpaid fees. During 1996, an affiliate of the general partner acquired, pursuant to a tender offer, for a purchase price of $16,500 per unit, approximately 35% of the total limited partnership units of the Partnership (88.5 units). NOTE 6 -- MORTGAGE PAYABLE In January 1996, the Operating Partnership obtained a $21,500,000 mortgage note, which is collateralized by the Properties. The loan is a 10-year balloon mortgage with an interest rate of 7.875%. The Partnership F-15 4652 WINROCK-HOUSTON LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) incurred approximately $672,000 in costs and fees in connection with the mortgage, of which approximately $54,000 was paid during 1995. Under the terms of the new loan agreement, the Operating Partnership is required to make monthly principal and interest installments of approximately $164,000 through February 1, 2006, based upon a 25 year amortization period, at which time the remaining principal of approximately $17,000,000 is due. In connection with the new financing arrangement the Operating Partnership closed its master revolving credit line from a prior loan agreement and the outstanding balance of approximately $2,555,000 was entirely paid off with the proceeds from the new mortgage loan. Scheduled principal payments on the mortgage payable subsequent to December 31, 1997, are as follows: 1998................................................... $ 331,000 1999................................................... 359,000 2000................................................... 388,000 2001................................................... 420,000 2002................................................... 454,000 Thereafter............................................. 19,004,000 ----------- $20,956,000 ===========
F-16 4653 WINROCK-HOUSTON LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 [WINTHROP LOGO] F-17 4654 WINROCK-HOUSTON LIMITED PARTNERSHIP YEAR ENDED DECEMBER 31, 1996 TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-19 Consolidated Financial Statements: Balance Sheets............................................ F-20 Statements of Operations.................................. F-21 Statements of Partners' Equity............................ F-22 Statements of Cash Flows.................................. F-23 Notes to Financial Statements............................. F-24
F-18 4655 INDEPENDENT AUDITORS' REPORT To the Partners of Winrock-Houston Limited Partnership: We have audited the accompanying consolidated balance sheet of Winrock-Houston Limited Partnership (the "Partnership") as of December 31, 1996, and the related consolidated statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Partnership as of December 31, 1995, were audited by other auditors whose report dated February 9, 1996, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Winrock-Houston Limited Partnership as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /S/ IMOWITZ KOENIG & CO., LLP Certified Public Accountants New York, New York February 4, 1997 F-19 4656 WINROCK-HOUSTON LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS
1996 1995 ----------- ----------- Real Estate: Land...................................................... $ 8,428,828 $ 8,428,828 Buildings, improvements and personal property............. 23,711,244 22,517,035 ----------- ----------- 32,140,072 30,945,863 Less: accumulated depreciation............................ 6,359,294 5,299,777 ----------- ----------- 25,780,778 25,646,086 Other Assets: Cash and cash equivalents................................. 314,485 669,869 Prepaid expenses and other assets......................... 895,310 702,931 Due from affiliate........................................ -- 176,599 Security deposits......................................... 249,100 194,683 Deferred costs, net of accumulated amortization of $64,591 (1996) and $76,467 (1995).............................. 607,065 82,961 Goodwill, net of accumulated amortization of $163,952 (1996) and $143,986 (1995)............................. 634,695 654,661 ----------- ----------- Total assets...................................... $28,481,433 $28,127,790 =========== =========== LIABILITIES AND PARTNERS' EQUITY Liabilities: Mortgage and loan payable................................. $21,262,363 $ 2,554,817 Accounts payable, accrued expenses and other payables..... 565,213 1,061,860 Fees payable to affiliates................................ 155,105 148,121 Tenants' security deposits................................ 205,954 189,380 ----------- ----------- Total liabilities................................. 22,188,635 3,954,178 ----------- ----------- Minority interest........................................... 1,055,622 4,636,683 ----------- ----------- Partners' Equity: Investor limited partners' equity -- 250 units -- authorized and outstanding.................... 6,139,701 20,296,456 General partner's (deficit)............................... (902,525) (759,522) ----------- ----------- Total partners' equity............................ 5,237,176 19,536,929 ----------- ----------- Total liabilities and partners' equity............ $28,481,433 $28,127,790 =========== ===========
See notes to consolidated financial statements F-20 4657 WINROCK-HOUSTON LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ---------- ---------- Revenues: Rental income............................................. $7,325,624 $7,096,732 Other income.............................................. 283,610 282,598 Interest.................................................. 28,727 36,900 ---------- ---------- Total revenues.................................... 7,637,961 7,416,230 ---------- ---------- Expenses: Real estate taxes......................................... 660,583 641,957 Payroll................................................... 889,997 894,815 Utilities................................................. 1,184,561 1,137,548 Repairs and maintenance................................... 777,736 805,264 Insurance................................................. 150,944 119,197 Management fees........................................... 532,163 512,817 Administrative and other.................................. 540,297 769,923 Interest.................................................. 1,628,160 249,645 Depreciation and amortization............................. 1,173,284 1,044,112 ---------- ---------- Total expenses.................................... 7,537,725 6,175,278 ---------- ---------- Net income before minority interest......................... 100,236 1,240,952 Minority interest in operating partnership's income......... 149,989 305,444 ---------- ---------- Net (loss) income................................. $ (49,753) $ 935,508 ========== ========== Net (loss) income allocated to general partner.............. $ (498) $ 9,355 ========== ========== Net (loss) income allocated to investor limited partners.... $ (49,255) $ 926,153 ========== ==========
See notes to consolidated financial statements F-21 4658 WINROCK-HOUSTON LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
INVESTOR LIMITED GENERAL PARTNERS' PARTNER'S EQUITY (DEFICIT) TOTAL ------------ --------- ------------ Balance -- December 31, 1994......................... $ 19,995,303 $(762,569) $ 19,232,734 Distributions to partners.......................... (625,000) (6,313) (631,313) Net income......................................... 926,153 9,355 935,508 ------------ --------- ------------ Balance -- December 31, 1995......................... 20,296,456 (759,527) 19,536,929 Distributions to partners.......................... (14,107,500) (142,500) (14,250,000) Net loss........................................... (49,255) (498) (49,753) ------------ --------- ------------ Balance -- December 31, 1996......................... $ 6,139,701 $(902,525) $ 5,237,176 ============ ========= ============
See notes to consolidated financial statements F-22 4659 WINROCK-HOUSTON LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ------------ ----------- Cash Flows from Operating Activities: Net (loss) income......................................... $ (49,753) $ 935,508 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation........................................... 1,059,517 1,003,132 Amortization........................................... 113,767 40,980 Minority interest in operating partnership's income.... 149,989 305,444 Changes in assets and liabilities: Increase in prepaid expenses and other assets........ (192,379) (538,103) Increase in security deposits........................ (54,417) (2,932) (Decrease) increase in accounts payable and accrued expenses............................................ (496,647) 710,473 Decrease (increase) in due from affiliate............ 176,599 (176,599) Increase in fees payable to affiliates............... 6,984 76,890 Increase in tenants' security deposits liability..... 16,574 8,168 ------------ ----------- Net cash provided by operating activities......... 730,234 2,362,961 ------------ ----------- Cash Flows from Investing Activities: Additions to real estate.................................. (1,194,209) (908,981) ------------ ----------- Cash used in investing activities................. (1,194,209) (908,981) ------------ ----------- Cash Flows from Financing Activities: Repayment of loan payable................................. (2,554,817) -- Proceeds from mortgage and loan payable................... 21,500,000 1,248,158 Payments on mortgage and loan payable..................... (237,637) (1,513,379) Distribution to minority interest......................... (3,731,050) (175,631) Distributions paid to partners............................ (14,250,000) (631,313) Deferred financing costs.................................. (617,905) (53,750) ------------ ----------- Net cash provided by (used in) financing activities..................................... 108,591 (1,125,915) ------------ ----------- Net (decrease) increase in cash and cash equivalents........ (355,384) 328,065 Cash and cash equivalents, beginning of year................ 669,869 341,804 ------------ ----------- Cash and cash equivalents, end of year...................... $ 314,485 $ 669,869 ============ =========== Supplemental Disclosure of Cash Flow Information: Interest Paid in Cash..................................... $ 1,555,015 $ 211,903 ============ ===========
See notes to consolidated financial statements F-23 4660 WINROCK-HOUSTON LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 NOTE 1 -- ORGANIZATION Winrock-Houston Limited Partnership (the "Partnership") was formed on July 21, 1988 under the laws of the State of Delaware for the purpose of acquiring a general and limited partnership interest in Winrock-Houston Associates Limited Partnership, a Delaware limited partnership (the "Operating Partnership"). The Operating Partnership was formed to acquire, renovate and operate four separate, but nearly contiguous, apartment complexes located in Houston, Texas (the "Properties"). The Partnership owns a combined 80% general and limited partnership interest in the Operating Partnership. Winrock-Houston Joint Venture, a Maryland general partnership, owns a combined 20% general and limited partnership interest in the Operating Partnership. The general partner of the Partnership is First Winthrop Corporation ("FWC"). The Partnership will terminate on December 31, 2037, or earlier upon the occurrence of certain events specified in the partnership agreement. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include the accounts of the Partnership and the Operating Partnership prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Winrock-Houston Joint Venture's ownership interest in the Operating Partnership has been reflected as a minority interest in the accompanying consolidated balance sheets and statements of operations. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Real Estate The Partnership and the Operating Partnership depreciate real property using the straight-line method over a 40-year recovery period. Personal property is depreciated using the 150% declining-balance method over a 5- to 12-year recovery period based on its estimated useful life. On January 1, 1996, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the asset's carrying amount. The adoption of the SFAS had no effect on the Partnership's consolidated financial statements. Cash and Cash Equivalents The Partnership considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. At December 31, 1996, cash and cash equivalents consisted primarily of shares of a money market mutual fund. Deferred Costs Financing costs and deferred fees are capitalized and amortized using the straight-line method over the terms of the related agreements. F-24 4661 WINROCK-HOUSTON LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Goodwill Goodwill is amortized using the straight-line method over 40 years. Income Taxes No provision for income taxes is reflected in the accompanying consolidated financial statements. The partners are required to report their allocable share of the income, gains, losses, deductions and credits of the Partnership on their individual income tax returns. Allocation of Profits, Losses and Cash Distributions In accordance with the partnership agreement, cash available for distribution is distributed 99% to the investor limited partners and 1% to FWC, the general partner, until the investor limited partners have received a 6% noncumulative, simple annual rate of return on their invested capital at which point the remainder will be distributed 97% to the investor limited partners and 3% to FWC. Distributions of cash other than cash flow shall be distributed in accordance with the partnership agreement with no less than 1% allocated to the general partner. Income shall be allocated to the partners in proportion to the cash available for distribution that is distributable to the partners; losses shall be allocated 99% to the investor limited partners and 1% to FWC. If there is no such cash available for distribution, income will be allocated 97% to the investor limited partner and 3% to the general partner. Reclassifications Certain amounts from 1995 have been reclassified to conform to the 1996 presentation. NOTE 3 -- DISTRIBUTIONS The Partnership distributed $14,247,500 ($56,990 per unit) to the Limited Partners during the year ended December 31, 1996. The general partner was entitled to $142,500 for the year ended December 31, 1996 but received only $2,500. The $140,000 underpayment will be paid in future distributions. The distributions were primarily from the net proceeds received from the mortgage refinancing (see Note 6). For the year ended December 31, 1995, distributions of $625,000 ($2,500 per unit) and $6,313 were paid to the investor limited and general partners, respectively. NOTE 4 -- TAXABLE INCOME The following summarizes the differences between the Partnership's taxable income for 1996 and 1995 and the Partnership's net income for financial reporting purposes:
1996 1995 --------- --------- Net (loss) income for financial reporting purposes.......... $ (49,753) $ 935,508 Accelerated depreciation on real and personal property...... (117,126) (204,262) Amortization of goodwill.................................... 19,966 19,996 Other book income not currently recognized for tax purposes.................................................. (38,068) (7,712) --------- --------- Taxable (loss) income............................. $(184,981) $ 743,530 ========= =========
F-25 4662 WINROCK-HOUSTON LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5 -- RELATED PARTY TRANSACTIONS The Partnership has incurred charges by and commitments to companies affiliated by common ownership and management with the general partner. Related party transactions with FWC and its affiliates include the following: The Partnership pays an affiliate of FWC an annual asset management fee in an amount equal to 1% of gross operating revenues from the Property for services rendered with respect to the supervision of the management agent. Management fees of $75,412 and $72,939 were paid for the years ended December 31, 1996 and 1995, respectively. Winthrop Management, an affiliate of FWC, is entitled to a property management fee equal to 5% of gross collections from the properties they manage. Management fees of $377,058 and $364,696 were paid for the years ended December 31, 1996 and 1995, respectively. The Partnership pays to the FWC an annual partnership administration and investor service fee of $50,000, which, since 1989, has been increased annually by 6%. Fees of $79,693 and $75,182 were paid during the year ended December 31, 1996 and 1995, respectively. During 1996, an affiliate of the general partner acquired, pursuant to a tender offer, for a purchase price of $16,500 per unit, approximately 35% of the total limited partnership units of the Partnership (88 1/2 units). Included in the accompanying statement of operations for the year ended December 31, 1995 are legal fees of $450,000, which were incurred in connection with an attempt by certain parties to remove FWC as the general partner of the Partnership. The Partnership paid to an affiliate of FWC reimbursements for administrative expenses of approximately $11,000 for the year ended December 31, 1996. In connection with the new mortgage note encumbering the Properties (Note 6), Winthrop Management was paid a refinancing fee of $161,250. NOTE 6 -- MORTGAGE PAYABLE In January 1996, the Operating Partnership obtained a $21,500,000 mortgage note, which is collateralized by the Properties. The loan is a 10-year balloon mortgage with an interest rate of 7.875%. Under the terms of the new loan agreement, the Operating Partnership is required to make monthly principal and interest installments of $164,164 through February 1, 2006, based upon a 25 year amortization period, at which time the remaining principal of approximately $17,000,000 is due. In connection with the new financing arrangement the Operating Partnership closed its master revolving credit line from a prior loan agreement and the outstanding balance of $2,554,817 was entirely paid off with the proceeds from the new mortgage loan. Scheduled principal payments on the mortgage payable subsequent to December 31, 1996 are as follows: 1997................................................... $ 306,463 1998................................................... 331,487 1999................................................... 358,555 2000................................................... 387,833 2001................................................... 419,502 Thereafter............................................. 19,458,523 ----------- $21,262,363 ===========
F-26 4663 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 4664 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 4665 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 September , 1998 A-3 4666 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF WINTHROP APARTMENT 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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 apartment properties to holding an interest in our large portfolio of properties. - 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 4667 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 Winthrop Apartment 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-67 CONFLICTS OF INTEREST.......................... S-71 Conflicts of Interest with Respect to the Offer...................................... S-71 Conflicts of Interest that Currently Exist for Your Partnership....................... S-71 Competition Among Properties................. S-71 Features Discouraging Potential Takeovers.... S-71 Future Exchange Offers....................... S-71 YOUR PARTNERSHIP............................... S-72 General...................................... S-72 Your Partnership and its Property............ S-72
i 4668
PAGE ---- Property Management.......................... S-72 Investment Objectives and Policies; Sale or Financing of Investments................... S-72 Capital Replacement.......................... S-73 Borrowing Policies........................... S-73 Competition.................................. S-73 Legal Proceedings............................ S-73 Selected Financial Information............... S-73 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-75 Fiduciary Responsibility of the General Partner of Your Partnership................ S-77 Distributions and Transfers of Units......... S-78
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-78 Compensation Paid to the General Partner and its Affiliates............................. S-78 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-79 LEGAL MATTERS.................................. S-79 EXPERTS........................................ S-79 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 4669 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 Apartment 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 4670 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 4671 - 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 $3,230 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 distributions of $ 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 small number of apartment 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 4672 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 4673 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 100% of 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? 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: 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 4674 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 4675 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. 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. 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 5 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. 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 S-7 4676 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. 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 Code. The particular tax consequences to you of the exchange 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 small number of apartment 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. S-8 4677 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 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 S-9 4678 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 4679 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, 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. 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 S-11 4680 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 the general partner of your partnership and the company that manages the property owned by your partnership. In addition to the general partner interest, we currently own a 17.40% limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 4681 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. 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." S-13 4682 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 4683 - 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 legal fees and expenses in connection therewith. We will 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" STARTING IN S-15 4684 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 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. In reaching the capitalization rate, we considered your properties' physical condition, locations 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 4685 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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 Consideration 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-1 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 S-17 4686 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 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 generated in that capacity from your partnership. The property manager received management fees of $254,000 in 1996, $259,000 in 1997 and $129,295 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 Your Partnership and its Property. Winthrop Apartment Investors Limited Partnership is a Maryland limited partnership which was formed on September 4, 1991 for the purpose of owning and operating a small number of apartment properties located in Austin, Texas, Irving, Texas, Atlanta, Georgia, and Alpharetta, Georgia, known as "Chesapeake (Lost Mill) Apartments," "Covington Creek Apartments," "Northside Circle Apartments" and "Webb Bridge Crossing Apartments," respectively. In 1992, it completed a private placement of units. Chesapeake (Lost Mill) Apartments consists of 124 apartment units, "Covington Creek Apartments" consists of 248 apartment units, "Northside Circle Apartments" consists of 219 apartment units, S-18 4687 and "Webb Bridge Crossing Apartments" consists of 164 apartment units. Your partnership has no employees. Property Management. Since November 1997, your partnership's property has been managed by an entity which is now an affiliate of ours. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2041, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage notes outstanding on "Chesapeake (Lost Mill) Apartments" of $2,035,802, "Northside Circle Apartments" of $5,011,205 and "Webb Bridge Crossing Apartments" of $4,384,804 payable to Nomura Asset Capital Corp., which bear interest at a rate of 7.27%. Such mortgage notes are due February 2026. There is also a mortgage note on "Covington Creek Apartments," the balance of which is $4,288,204, as of June 30, 1998. The note bears interest at 7.27% and is due March 2026. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 4688 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 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 4689
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 4690 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 4691
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 4692 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 4693 SUMMARY FINANCIAL INFORMATION OF WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP The summary financial information of Winthrop Apartment Investors Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Winthrop Apartment 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 of Your Partnership" included herein. See "Index to Financial Statements." WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... 2,598,557 0 5,273,000 5,239,000 5,148,000 4,777,570 4,350,442 Net Income/(Loss)............ 161,327 0 417,000 487,000 1,888,000 1,733,155 1,442,988 BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... 16,048,303 16,286,000 16,555,000 16,939,000 17,242,431 17,549,172 Total Assets................. 20,535,473 0 20,588,000 21,232,000 22,499,000 22,824,380 23,106,140 Mortgage Notes Payable, including Accrued Interest................... 15,660,016 0 15,739,000 15,885,000 0 0 0 Partners' Capital/(Deficit).......... 4,385,327 0 4,224,000 4,762,000 21,993,000 22,371,426 22,650,646
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 YOUR 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 $2,640 $5,333.06
S-25 4694 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. 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 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 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. S-26 4695 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 Code. 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 therefore 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 apartment 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 S-27 4696 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 the 1997 distributions with respect to your units were $3,250. 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 an 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 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. 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. S-28 4697 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently own a 17.40% limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 4698 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment properties may 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. S-30 4699 - 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 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 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 4700 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 4701 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 4702 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. 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. S-34 4703 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." 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. 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. S-35 4704 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, (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 9:00 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 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, Denver, Colorado time. S-36 4705 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 4706 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. 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 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 S-38 4707 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 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 S-39 4708 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 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 4709 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. 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. 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-41 4710 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-42 4711 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 payment. 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 OP Units and any such S-43 4712 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-44 4713 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-45 4714 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-46 4715 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-47 4716 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-48 4717 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-49 4718 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 4719 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-51 4720 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 4721 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your properties' 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 4722 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 4723 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 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, a third party expert, 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 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 the 1997 distributions with respect to your units were $3,250 per unit. 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 an 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-55 4724 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-56 4725 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 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. S-57 4726 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 4727 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 September 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 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 property was 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, S-59 4728 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 4729 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Chesapeake (Lost Mill) Apartments, Covington Partnership owns interests (either directly or through Creek Apartments, Northside Circle Apartments and Webb subsidiaries) in numerous multifamily apartment Bridge Crossing Apartments, respectively. 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 2041. 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, finance and conduct any business that may be lawfully conducted by otherwise deal with your partnership's property. a limited partnership organized pursuant to the Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as agreement of limited partnership, your partnership may amended from time to time, or any successor to such perform all acts necessary, advisable or convenient to statute) (the "Delaware Limited Partnership Act"), the business of your partnership including borrowing provided that such business is to be conducted in a 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-61 4730 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 250 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 partner may, with 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 and other equity interests. Such interests Subject to Delaware law, any additional partnership may be sold on such terms and conditions and the interests may be issued in one or more classes, or one additional limited partners will have such rights and or more series of any of such classes, with such obligations as the general partner may determine. In designations, preferences and relative, partici- the event the general partner sells additional limited pating, optional or other special rights, powers and partner interests, prior to the sale of such interests, duties as shall be determined by the general partner, the general partners will offer such interests to the in its sole and absolute discretion without the original 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, your partnership may not purchase any funds or other assets to its subsidiaries or other property from the general partner or its affiliates, persons in which it has an equity investment, and such unless one of such persons purchased the property in persons may borrow funds from the AIMCO Operating its name no longer than twelve months prior to the Partnership, on terms and conditions established in the offering of units in order to facilitate the sole and absolute discretion of the general partner. To acquisition of such property by your partnership. The the extent consistent with the business purpose of the purchase price of such property will be no greater than AIMCO Operating Partnership and the permitted the cost of such property to the general partner or its activities of the general partner, the AIMCO Operating affiliates, there will be no difference in interest Partnership may transfer assets to joint ventures, rates of any loans secured by such property at the time limited liability companies, partnerships, acquired by the general partner or the selling corporations, business trusts or other business affiliate and time acquired by your partnership, no entities in which it is or thereby becomes a compensation will be given to the general partner or participant upon such terms and subject to such its affiliate and all profits or losses during the conditions consistent with the AIMCO Operating Part- interim period will accrue to your partnership. Your nership Agreement and applicable law as the general partnership may not purchase equipment from an partner, in its sole and absolute discretion, believes affiliated entity even on an interim purchase to be advisable. Except as expressly permitted by the arrangement. Your partnership may not lease on the your AIMCO Operating Partnership Agreement, neither the partnership's property to the general partner or its general partner nor any of its affiliates may sell, affiliates but may see it to the general partner or its transfer or convey any property to the AIMCO Operating affiliates if: (1) your partnership does not have Partnership, directly or indirectly, except pursuant to sufficient proceeds from the sale of units to retain transactions that are determined by the general partner your partnership's property, (2) the general partner or in good faith to be fair and reasonable. its affiliate pays your partnership an amount in cash equal to the cost of your partnership's property, (3) the general partner or its affiliates assumes off the your partnership's obligations incurred in connection with the holding of your partnership's property and (4) the sale occurs not later than ninety days after the termination of the offering of the units. The general partner and its affiliates may not have the exclusive right to sell or exclusive employment to sell your partnership's property for 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 if (1) such loan is evidenced by a promissory note which bears interest at a commercially reasonable rate not in excess of the lesser of the maximum rate permitted by law, 3% above the "base rate" of the First National Bank of Boston or the amount which would be charged by an unrelated lending institution on comparable loans for the same purpose in the same locality of your partnership's property if the loan is made in connection with your partnership's property, (2) no prepayment charge or penalty
S-62 4731 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP will be required by such lender on a loan to your partnership secured by a trust deed, mortgage or encumbrance on your partnership's property except to the extent that such prepayment charge or penalty is attributable to the underlying encumbrance, (3) the obligation is subordinate to the obligations of your partnership to pay unrelated creditors and (4) the principal amount of such loan must be paid over a period of less than 48 months and at least 50% of the principal amount must be paid during the first 24 months.
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. 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 kept with a statement of the purpose of such demand and at by your partnership which lists the names, addresses such OP Unitholder's own expense, to obtain a current and business telephone numbers of all limited partners list of the name and last known business, residence or and the number of units owned by each limited partner. mailing address of the general partner and each other Such list is in alphabetical order, readily readable OP Unitholder. (at least 10 point type, on white paper), and is updated at least quarterly to reflect changes. Upon request of a limited partner, the general partner will mail to such limited partner a copy of the investor listed, within ten days of such request. 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
S-63 4732 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, 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 negligence or indemnification of AIMCO, or any director or officer of misconduct on the part of such person. In addition, the AIMCO (in its capacity as the previous general partner general partner and their affiliates are entitled to of the AIMCO Operating Partnership), the general indemnification by your partnership against any loss, partner, any officer or director of general partner or damage, liability, cost or expense sustained by it or the AIMCO Operating Partnership and such other persons them if such person determined, in good faith that the as the general partner may designate from and against course of conduct which caused the loss or liability all losses, claims, damages, liabilities, joint or was in the best interests of your partnership and such several, expenses (including legal fees), fines, person was acting on behalf or performing services for settlements and other amounts incurred in connection your partnership, provided that such loss, damage, with any actions relating to the operations of the liability, cost or expense was not the result of AIMCO Operating Partnership, as set forth in the AIMCO negligence or misconduct by such person. Any such Operating Partnership Agreement. The Delaware Limited indemnity provided shall be paid, from and only to the Partnership Act provides that subject to the standards extent of, partnership assets. Notwithstanding any and restrictions, if any, set forth in its partnership other provision to the contrary, the general partner, agreement, a limited partnership may, and shall have its affiliates and any person acting as broker-dealer the power to, indemnify and hold harmless any partner will be liable and will not be entitled to indemnity or other person from and against any and all claims and for any loss, damage or cost resulting from violations demands whatsoever. It is the position of the of Federal or state securities laws in connection with Securities and Exchange Commission that indemnification the units unless there has been a successful of directors and officers for liabilities arising under adjudication of the merits of each count involving such the Securities Act is against public policy and is securities law violations, such claims have been unenforceable pursuant to Section 14 of the Securities dismissed with prejudice on the merits by a court of Act of 1933. 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 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. A general partner may not withdraw AIMCO Operating Partnership by the OP Unitholders with voluntarily from your partnership unless a substitute or without cause. Under the AIMCO Operating Partnership or additional general partner remains and may not Agreement, the general partner may, in its sole withdraw voluntarily without the consent of the holder discretion, prevent a transferee of an OP Unit from of a majority of the units unless such withdrawal would becoming a substituted limited partner pursuant to the not affect the tax status of your partnership or AIMCO Operating Partnership Agreement. The general materially adversely affect the limited partners. The partner may exercise this right of approval to deter, general partner may admit an additional or substitute delay or hamper attempts by persons to acquire a general partner with the consent of limited partners controlling interest in the AIMCO Operating Partner- owning more than 50% of the units. Additional general ship. Additionally, the AIMCO Operating Partnership partner may also be admitted without the consent of the Agreement contains restrictions on the ability of OP limited partners if the addition of such person is Unitholders to transfer their OP Units. See necessary for tax purposes, such person has not "Description of OP Units -- Transfers and Withdrawals" authority to manage or control your Partners, there is in the accompanying Prospectus. no change in the identity of the person who has authority to manage or control your partnership and such admission does not materially adversely affect the limited partners. A limited partner may
S-64 4733 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP not transfer his interests without the consent of the general partner which may be withheld at the sole discretion of the general partners.
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 if such amendment in the AIMCO Operating Partnership Agreement, whereby does not adversely affect the rights of the limited the general partner may, without the consent of the OP partners, to comply with applicable tax laws and to Unitholders, amend the AIMCO Operating Partnership cure any ambiguities. Other amendments to your Agreement, amendments to the AIMCO Operating partnership's agreement of limited partnership must be Partnership Agreement require the consent of the approved by the limited partners owning more than 50% holders of a majority of the outstanding Common OP of the units and the general partner. Amendments which Units, excluding AIMCO and certain other limited increase the amount of or accelerates the date of exclusions (a "Majority in Interest"). Amendments to payment for capital contributions required to be paid the AIMCO Operating Partnership Agreement may be by limited partners, extends the termination date of proposed by the general partner or by holders of a your partnership, adversely affects the rights of Majority in Interest. Following such proposal, the limited partners or amends the amendment provisions general partner will submit any proposed amendment to required the consent of all limited partners. Other the OP Unitholders. The general partner will seek the specified provisions which adversely affect the rights written consent of the OP Unitholders on the proposed or increase the obligations of a partner must be amendment or will call a meeting to vote thereon. See approved by such affected partner. No amendment to your "Description of OP Units -- Amendment of the AIMCO partnership's agreement of limited partnership may be Operating Partnership Agreement" in the accompanying made that affects the obligation of the limited Prospectus. partners to make their required capital contributions or affect the timing or amount of the fees to be paid by your partnership under your partnership's agreement of limited partnership.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives no fee for its services as general partner. capacity as general partner of the AIMCO Operating Moreover, the general partner or certain affiliates may Partnership. In addition, the AIMCO Operating Part- be entitled to compensation for additional services nership is responsible for all expenses incurred rendered. 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 any debts, negligence, no OP Unitholder has personal liability for 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 has been fully paid, no ment in the AIMCO Operating Partnership. However, the limited partner shall, 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.
S-65 4734 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 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 or possess an liability of the general partner by providing that the interest in other business ventures of every nature and general partner, and its officers and directors will description, including, without limitation, real estate not be liable or accountable in damages to the AIMCO business ventures, whether or not such other Operating Partnership, the limited partners or enterprises shall be in competition with any activities assignees for errors in judgment or mistakes of fact or of your partnership; provided, however, that the law or of any act or omission if the general partner or general partner or its affiliates may not enter into such director or officer acted in good faith. See any venture competitive with the business of your "Description of OP Units -- Fiduciary Responsibilities" partnership unless such venture will not have a in the accompanying Prospectus. materially adverse effect on the business of your partnership.
Federal Income Taxation There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-66 4735 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 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, approve the law or by the AIMCO Operating its interest in the AIMCO Operating merger or other reorganization of Partnership Agreement, the Partnership or the admission of a your partnership and authorize the affirmative vote or consent of successor general partner. issuance of additional limited holders of at least 50% of the partnership interests or other outstanding Preferred OP Units will Under the AIMCO Operating Partner- equity interests in your be necessary for effecting any ship Agreement, the general partner partnership. 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 the your partnership that materially and adversely any assets of the AIMCO Operating by retiring. Your partnership may affects the rights or preferences Partnership (including, but not be continued by the remaining of the holders of the Preferred OP limited to, the exercise or grant general partner or, if none, the Units. The creation or issuance of of any conversion, option, limited partners may agree to any class or series of partnership privilege or subscription right or continue your partnership by units, including, without any other right available in electing a successor general limitation, any partnership units connection with any assets at any partner upon the vote of holders of that may have rights senior or time held by the AIMCO Operating more than 50% of the units within superior to the Preferred OP Units, Partnership) or the merger, 120 days after the retirement of shall not be deemed to materially consolidation, reorganization or the general partner. 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 Partner-
S-67 4736 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 Cash Flow 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 as de- and from time to time on or after in its sole and absolute discretion termined by the general partner, the fifth anniversary of the issue determine, of Available Cash (as and in any event shall be made date of the Preferred OP Units, the defined in the AIMCO Operating within 60 days after the close of AIMCO Operating Partnership may Partnership Agreement) generated by each fiscal year. 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. Your dividend rate on the most recently with respect to such quarter, in partnership has made distributions issued AIMCO non-convertible accordance with their respective in the past and is projected to preferred stock which ranks on a interests in the AIMCO Operating made distributions in 1998. 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-68 4737 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 who is not a Preferred OP Units and the OP Units. The AIMCO Operating Part- minor or incompetent, except in Preferred OP Units are not listed nership Agreement restricts the limited situations, and such person on any securities exchange. The transferability of the OP Units. may be substituted as a limited Preferred OP Units are subject to Until the expiration of one year partner provided that: (1) the restrictions on transfer as set from the date on which an OP transfer complies with the forth in the AIMCO Operating Unitholder acquired OP Units, then-applicable rules and Partnership Agreement. subject to certain exceptions, such regulations of any governmental OP Unitholder may not transfer all authority with jurisdiction over Pursuant to the AIMCO Operating or any portion of its OP Units to the disposition, (2) except in Partnership Agreement, until the any transferee without the consent specified circumstances, the expiration of one year from the of the general partner, which interest transferred is not less date on which a holder of Preferred consent may be withheld in its sole than 1/4 unit, (3) a written OP Units acquired Preferred OP and absolute discretion. After the assignment has been duly executed Units, subject to certain expiration of one year, such OP and acknowledged by the assignor exceptions, such holder of Unitholder has the right to and assignee, (4) the transfer, Preferred OP Units may not transfer transfer all or any portion of its when added to all other assignment all or any portion of its Pre- OP Units to any person, subject to taking place in the preceding 12 ferred OP Units to any transferee the satisfaction of certain month does not result in without the consent of the general conditions specified in the AIMCO termination of your partnership for partner, which consent may be Operating Partnership Agreement, tax purposes, (5) the approval of withheld in its sole and absolute including the general partner's the general partner which may be discretion. After the expiration of right of first refusal. See withheld in the sole and absolute one year, such holders of Preferred "Description of OP Units -- discretion of the general partner OP Units has the right to transfer Transfers and Withdrawals" in the has been granted and (6) the all or any portion of its Preferred accompanying Prospectus. assignor and assignee have complied OP Units to any person, subject to with such other conditions as set the satisfaction of certain After the first anniversary of forth in your partnership's agree- conditions specified in the AIMCO becoming a holder of Common OP ment of limited partnership. Operating Partnership Agreement, Units, an OP Unitholder has the including the general partner's right, subject to the terms and There are no redemption rights right of first refusal. conditions of the AIMCO Operating associated with your units. 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 general partner may, in its of Class I Cumulative Preferred sole and absolute discretion but Stock of AIMCO that pay an subject to the restrictions on the aggregate amount of dividends yield ownership of Class A Common Stock equivalent to the distributions on imposed under the AIMCO's charter the Preferred OP Units tendered for and the transfer restrictions and redemption and are part of a class other limitations thereof, elect to or series of preferred stock that cause AIMCO to acquire some or all is then listed on the New York of the tendered Common OP Units in Stock Exchange or another national ex- securities exchange, or (iii) a number of
S-69 4738 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS shares of Class A Common Stock of change for Class A Common Stock, AIMCO that is equal in Value to the based on an exchange ratio of one Liquidation Preference of the share of Class A Common Stock for Preferred OP Units tendered for each Common OP Unit, subject to redemption. The Preferred OP Units adjustment as provided in the AIMCO may not be redeemed at the option Operating Partnership Agreement. of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-70 4739 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 generated in that capacity and fees for additional services from your partnership. The property manager received management fees of $254,000 in 1996, $259,000 in 1997 and $129,295 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's 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'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 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-71 4740 YOUR PARTNERSHIP GENERAL Winthrop Apartment Investors Limited Partnership is a Maryland limited partnership. Insignia acquired your partnership in November 1997. AIMCO acquired Insignia in October, 1998. There are currently a total of 284 limited partners of your partnership and a total of 251 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the small number of apartment properties described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on September 4, 1991 for the purpose of owning and operating a small number of apartment properties located in Austin, Texas, Irving, Texas, Atlanta, Georgia, and Alpharetta, Georgia, known as "Chesapeake (Lost Mill) Apartments," "Covington Creek Apartments," "Northside Circle Apartments" and "Webb Bridge Crossing Apartments," respectively. There are 124 apartment units in "Chesapeake (Lost Mill) Apartments." The total rentable square footage is 79,456 square feet and the average annual rent per apartment unit is $5,931. "Covington Creek Apartments" has 248 apartment units. The total rentable square footage is 193,362 square feet. The average annual rent per apartment unit is $6,492. In "Northside Circle Apartments," there are 219 apartment units. The total rentable square footage is 160,180 square feet and the average annual rent per apartment unit is $6,477. There are 164 apartment units in "Webb Bridge Crossing Apartments." The total rentable square footage is 170,164 square feet and the average annual rent per apartment unit is $7,138. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1997, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $254,000, $259,000 and $129,295, respectively. The manager of your partnership's property is an affiliate of the general partner of your partnership and of AIMCO. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2041 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. S-72 4741 An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage notes outstanding on "Chesapeake (Lost Mill) Apartments" of $2,035,802, "Northside Circle Apartments" of $5,011,205 and "Webb Bridge Crossing Apartments" of $4,384,804 payable to Nomura Asset Capital Corp., which bear interest at a rate of 7.27%. Such mortgage notes are due February 2026. There is also a mortgage note on "Covington Creek Apartments," the balance of which is $4,288,204, as of June 30, 1998. The note bears interest at 7.27% and is due March 2026. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. The audited financial statements have been audited by Imowitz Koenig & Co. LLP 1997. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-73 4742 Below is selected financial information for Winthrop Apartment Investors Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP --------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ----------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- --------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents....... $ 1,662,921 Not $ 1,191,000 $ 1,220,000 $ 3,455,000 $ 3,581,214 $ 3,508,588 Land & Building................. 19,317,241 Available 19,214,000 18,859,000 18,645,000 18,410,780 18,223,458 Accumulated Depreciation........ (3,268,938) 0 (2,928,000) (2,304,000) (1,706,000) (1,168,349) (674,286) Other Assets.................... 2,824,249 0 3,111,000 3,457,000 2,105,000 2,000,735 2,048,380 ----------- --------- ----------- ----------- ----------- ----------- ----------- Total Assets........... $20,535,473 $ 0 $20,588,000 $21,232,000 $22,499,000 $22,824,380 $23,106,140 =========== ========= =========== =========== =========== =========== =========== Mortgage & Accrued Interest..... 15,660,016 15,739,000 15,885,000 0 0 0 Other Liabilities............... 490,130 625,000 585,000 506,000 452,954 455,494 ----------- --------- ----------- ----------- ----------- ----------- ----------- Total Liabilities...... $16,150,146 $ 0 $16,364,000 $16,470,000 $ 506,000 $ 452,954 $ 455,494 ----------- --------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)...... $ 4,385,327 $ 0 $ 4,224,000 $ 4,762,000 $21,993,000 $22,371,426 $22,650,646 =========== ========= =========== =========== =========== =========== ===========
WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATING DATA Rental Revenue..................... 2,486,404 4,961,000 4,925,000 4,713,000 4,484,341 4,078,483 Other Income....................... 112,153 312,000 314,000 435,000 293,229 271,959 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. 2,598,557 0 5,273,000 5,239,000 5,148,000 4,777,570 4,350,442 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 1,063,103 0 2,260,000 2,187,000 1,770,000 1,656,163 1,533,444 General & Administrative........... 129,296 117,000 93,000 306,000 310,030 334,818 Depreciation....................... 340,500 681,000 679,000 620,000 576,416 534,450 Interest Expense................... 646,470 1,280,000 1,267,000 0 0 0 Property Taxes..................... 257,861 518,000 526,000 564,000 501,806 504,742 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ 2,437,230 0 4,856,000 4,752,000 3,260,000 3,044,415 2,907,454 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income......................... 161,327 0 417,000 487,000 1,888,000 1,733,155 1,442,988 ========== ========== ========== ========== ========== ========== ==========
S-74 4743 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Due to this partnership being recently acquired, very little discussion is available for variances. Results of Operations Six Months Ended June 30, 1998 Due to this partnership being a recent acquisition, no data was available for the six months ended June 30, 1997. Net Income Your partnership recognized net income of $161,327 for the six months ended June 30, 1998. Revenues Rental and other property revenues from the partnership's property totaled $2,598,557 for the six months ended June 30, 1998. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,063,103 for the six months ended June 30, 1998. Management expenses totaled $129,295 for the six months ended June 30, 1998. General and Administrative Expenses General and administrative expenses totaled $129,296 for the six months ended June 30, 1998. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $646,470 for the six months ended June 30, 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your Partnership recognized net income of $ 417,000 for the year ended December 31, 1997, compared to $ 487,000 for the year ended December 31, 1996. The decrease in net income of $ 70,000, or 14.37% was primarily the result of an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $5,273,000 for the year ended December 31, 1997, compared to $5,239,000 for the year ended December 31, 1996, an increase of $34,000, or 0.65%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $2,260,000 for the year ended December 31, 1997, compared to $2,187,000 for the year ended December 31, S-75 4744 1996, an increase of $73,000 or 3.34%. Management expenses totaled $259,000 for the year ended December 31, 1997, compared to $254,000 for the year ended December 31, 1996, an increase of $5,000, or 1.97%. General and Administrative Expenses General and administrative expenses totaled $117,000 for the year ended December 31, 1997 compared to $93,000 for the year ended December 31, 1996, an increase of $24,000 or 25.81%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,280,000 for the year ended December 31, 1997, compared to $1,267,000 for the year ended December 31, 1996, an increase of $13,000, or 1.03%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $487,000 for the year ended December 31, 1996, compared to $1,888,000 for the year ended December 31, 1995. The decrease in net income of $1,401,000, or 74.21% was primarily the result of an increase in interest expense. Revenues Rental and other property revenues from the partnership's property totaled $5,239,000 for the year ended December 31, 1996, compared to $5,148,000 for the year ended December 31, 1995, an increase of $91,000, or 1.77%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $2,187,000 for the year ended December 31, 1996, compared to $1,770,000 for the year ended December 31, 1995, an increase of $417,000 or 23.56%. The increase in operating expenses is due mainly to an increase in professional and amortization expenses coupled with a reclassification of certain expenses to operating expense that were included in general and administrative expenses at December 31, 1995. Amortization expenses increased due to additional amortization of the deferred legal and mortgage costs associated with the Partnership's refinancing. Management expenses totaled $254,000 for the year ended December 31, 1996, compared to $243,000 for the year ended December 31, 1995, an increase of $11,000, or 4.53%. General and Administrative Expenses General and administrative expenses totaled $93,000 for the year ended December 31, 1996 compared to $306,000 for the year ended December 31, 1995, a decrease of $213,000 or 69.61%. The decrease is primarily due to the reclassification of certain general and administrative expenses for 1995 to operating expenses in 1996. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,267,000 for the year ended December 31, 1996, compared to $0 for the year ended December 31, 1995, an increase of $1,267,000. The increase is due to the partnership securing $16 million in new debt during 1996. S-76 4745 Liquidity and Capital Resources As of June 30, 1998, your partnership had $1,662,921 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 owned by AIMCO. See "Conflicts of Interest". The general partner and their affiliates are entitled to indemnification by your partnership against any loss, damage, liability, cost or expense sustained by it or them if such person 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 person was acting on behalf or performing services for your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct by such person. 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 has been 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 or the legal action is initiated by a limited partner and a court of competent jurisdiction specifically approves such advancement and the general partner or its affiliates undertake to repay the advanced funds in cases in which such party is not entitled to indemnification. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. No partnership funds will be used to purchase any insurance the insures any party against any liability for which indemnification is not available pursuant to your partnership's agreement of limited partnership. S-77 4746 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 7,790 1995........................................................ 8,700 1996........................................................ 70,030 1997........................................................ 3,230 1998 (through June 30)...................................... 0
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner): BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 partners -- by your partnership including reimbursement for expenses) management fees and distributions in its capacity as general partner interest of partnership as described in the following table:
YEAR COMPENSATION - ---- --------------- 1994................................................ [Not available] 1995................................................ 0 1996................................................ 80,000 1997................................................ 41,000 1998 (through June 30)..............................
S-78 4747 In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995............................................ $243,000 1996............................................ 254,000 1997............................................ 259,000 1998 (through June 30).......................... 129,295
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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Winthrop Apartment Investors Limited Partnership at December 31, 1997 and 1996 and for the years then ended, appearing in this Prospectus Supplement have been audited by Imowitz Koenig & Co., LLP independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The financial statements of Winthrop Apartment Investors Limited Partnership at December 31, 1995, and for the year then ended, appearing in this Prospectus Supplement have been audited by Arthur Andersen LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-79 4748 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statement of Operations for the six months ended June 30, 1998 (unaudited)................................. F-3 Condensed Statement of Cash Flows for the six months ended June 30, 1998 (unaudited)................................. F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-8 Balance Sheets as of December 31, 1997 and 1996............. F-9 Statements of Operations for the years ended December 31, 1997 and 1996............................................. F-10 Statements of Partners' Capital (Deficit) for the years ended December 31, 1997 and 1996.......................... F-11 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-12 Notes to Financial Statements............................... F-13 Report of Independent Public Accountants.................... F-19 Balances Sheets as of December 31, 1996 and 1995............ F-20 Statements of Operations for the years ended December 31, 1996 and 1995............................................. F-21 Statement of Partners' Capital for the years ended December 31, 1996 and 1995......................................... F-22 Statements of Cash Flows for the years ended December 31, 1996 and 1995............................................. F-23 Notes to Financial Statements............................... F-24
F-1 4749 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 1,662,921 Receivables and Deposits.................................... 777,083 Other Assets................................................ 2,047,166 Investment Property Land...................................................... $ 3,666,441 Building and related property............................. 15,650,800 ----------- 19,317,241 Less: Accumulated depreciation............................ (3,268,938) 16,048,303 ----------- ----------- Total Assets...................................... $20,535,473 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 46,181 Other Accrued Liabilities................................... 323,737 Tenant Security Deposits.................................... 120,212 Notes Payable............................................... 15,660,016 Partners' Capital........................................... 4,385,327 ----------- Total Liabilities and Partners' Capital........... $20,535,473 ===========
F-2 4750 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Revenues: Rental Income............................................. $2,486,404 Other Income.............................................. 112,153 ---------- Total Revenues.................................... 2,598,557 Expenses: Operating Expenses........................................ 1,063,103 General and Administrative Expenses....................... 129,296 Depreciation Expense...................................... 340,500 Interest Expense.......................................... 646,470 Property Tax Expense...................................... 257,861 ---------- Total Expenses.................................... 2,437,230 ---------- Net Income........................................ $ 161,327 ==========
F-3 4751 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Operating Activities: Net Income................................................ $ 161,327 Adjustments to reconcile net income to net cash provided by operating Activities: Depreciation and Amortization.......................... 422,096 Changes in accounts: Receivables and deposits and other assets............ 205,155 Accounts Payable and accrued expenses................ (134,870) ---------- Net cash provided by (used in) operating activities........................................ 653,708 ---------- Investing Activities: Property improvements and replacements.................... (102,803) ---------- Net cash provided by (used in) investing activities........................................ (102,803) ---------- Financing Activities: Payments on mortgage...................................... (78,984) ---------- Net cash provided by (used in) financing activities........................................ (78,984) ---------- Net increase in cash and cash equivalents......... 471,921 Cash and cash equivalents at beginning of year.............. 1,191,000 ---------- Cash and cash equivalents at end of period.................. $1,662,921 ==========
F-4 4752 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Winthrop Apartment Investors Limited Partnership as of June 30, 1998 and for the six months ended June 30, 1998 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 4753 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND 1996 F-6 4754 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP YEARS ENDED DECEMBER 31, 1997 AND 1996 TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-8 Financial Statements: Balance Sheets............................................ F-9 Statements of Operations.................................. F-10 Statements of Partners' Capital (Deficit)................. F-11 Statements of Cash Flows.................................. F-12 Notes to Financial Statements............................. F-13
F-7 4755 INDEPENDENT AUDITORS' REPORT To the Partners of Winthrop Apartment Investors Limited Partnership Greenville, South Carolina We have audited the accompanying balance sheets of Winthrop Apartment Investors Limited Partnership (a Maryland limited partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures of the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Winthrop Apartment Investors Limited Partnership, a Maryland limited partnership, as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ JNOWITSY KOENIG & CO., LLP Certified Public Accountants New York, New York February 16, 1998 F-8 4756 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP BALANCE SHEETS (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS
DECEMBER 31, ----------------- 1997 1996 ------- ------- Cash and cash equivalents................................... $ 1,191 $ 1,220 Replacement reserves and escrow accounts.................... 747 756 Other assets................................................ 2,364 2,701 ------- ------- 4,302 4,677 ------- ------- Investment properties: Land...................................................... 3,666 3,666 Buildings and related personal property................... 15,548 15,193 ------- ------- 19,214 18,859 Less: Accumulated depreciation............................ (2,928) (2,304) ------- ------- 16,286 16,555 ------- ------- Total Assets...................................... $20,588 $21,232 ======= ======= LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) Liabilities: Accounts payable............................................ $ 120 $ 28 Tenant security deposit liabilities......................... 111 127 Other liabilities........................................... 394 430 Mortgage note payable....................................... 15,739 15,885 ------- ------- 16,364 16,470 ------- ------- Partners' Capital (Deficit): General partner........................................... (329) (300) Limited partners (250 units authorized, issued and outstanding)........................................... 4,553 5,062 ------- ------- 4,224 4,762 ------- ------- Total Liabilities and Partners' Capital........... $20,588 $21,232 ======= =======
See notes to financial statements F-9 4757 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT UNIT DATA)
YEARS ENDED DECEMBER 31, --------------- 1997 1996 ------ ------ Revenues: Rental income............................................. $4,961 $4,925 Other income.............................................. 312 314 ------ ------ Total revenues.................................... 5,273 5,239 ------ ------ Expenses: Operating................................................. 2,260 2,187 General and administrative................................ 117 93 Depreciation and amortization............................. 681 679 Interest.................................................. 1,280 1,267 Property taxes............................................ 518 526 ------ ------ Total expenses.................................... 4,856 4,752 ------ ------ Net income........................................ $ 417 $ 487 ====== ====== Net income allocated to general partners.................... $ 22 $ 28 Net income allocated to limited partners.................... 395 459 ------ ------ $ 417 $ 487 ====== ====== Net income per limited partnership unit................... $1,580 $1,836 ====== ======
See notes to financial statements F-10 4758 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 1997 AND 1996 (IN THOUSANDS, EXCEPT UNIT DATA)
LIMITED GENERAL LIMITED TOTAL PARTNERSHIP PARTNER'S PARTNERS' PARTNERS' UNITS DEFICIT CAPITAL CAPITAL ----------- --------- --------- --------- Balance -- January 1, 1996.......................... 250 $ (20) $ 22,013 $ 21,993 Distributions to partners........................... -- (308) (17,410) (17,718) Net income.......................................... -- 28 459 487 --- ----- -------- -------- Balance -- December 31, 1996........................ 250 (300) 5,062 4,762 Distributions to partners........................... -- (51) (904) (955) Income.............................................. -- 22 395 417 --- ----- -------- -------- Balance -- December 31, 1997........................ 250 $(329) $ 4,553 $ 4,224 === ===== ======== ========
See notes to financial statements. F-11 4759 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------ 1997 1996 ------- -------- Cash flows from operating activities: Net income................................................ $ 417 $ 487 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 624 598 Amortization........................................... 172 196 Changes in assets and liabilities: Escrow accounts...................................... 102 (533) Other assets......................................... 165 (111) Accounts payable..................................... 92 (17) Tenant security deposit liabilities.................. (16) 2 Other liabilities.................................... (36) 94 ------- -------- Net cash provided by operating activities......... 1,520 716 ------- -------- Cash flows from investing activities: Property improvements and replacements.................... (355) (214) Net deposits to restricted escrows........................ (93) (223) ------- -------- Cash used in investing activities................. (448) (437) ------- -------- Cash flows from financing activities: Proceeds from mortgage financings......................... -- 16,000 Principal payments on mortgage............................ (146) (115) Deferred financing costs.................................. -- (681) Distributions to partners................................. (955) (17,718) ------- -------- Net cash used in financing activities............. (1,101) (2,514) ------- -------- Net decrease in cash and cash equivalents................... (29) (2,235) Cash and Cash Equivalents, Beginning of Year................ 1,220 3,455 ------- -------- Cash and Cash Equivalents, End of Year...................... $ 1,191 $ 1,220 ======= ======== Supplemental Disclosure of Cash Flow Information: Cash paid for interest.................................... $ 1,166 $ 1,088 ======= ========
See notes to financial statements. F-12 4760 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997 AND 1996 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Winthrop Apartment Investors Limited Partnership (the "Partnership") was organized on September 5, 1991 under the laws of the State of Maryland for the purpose of acquiring, renovating, operating and managing residential apartment complexes. The Partnership's properties are located in Austin, Texas (Chesapeake Apartments); Irving, Texas (Covington Creek Apartments); Fulton County, Georgia (Webb Bridge Crossing Apartments); and Atlanta, Georgia (Northside Circle Apartments). The general partner of the Partnership is WAI Associates Limited Partnership, a Texas limited Partnership ("WAI" or the "General Partner"), whose sole general partner is WAI Properties, Inc., a Texas corporation and a wholly owned subsidiary of First Winthrop Corporation ("First Winthrop"). The sole limited partner of WAI is Winthrop Financial Associates ("WFA"). First Winthrop is a wholly owned subsidiary of WFA. On October 28, 1997, Insignia Financial Group, Inc. ("Insignia") acquired 100% of the Class B stock of First Winthrop. Pursuant to this transaction, Insignia has the right to appoint the members of a Residential Committee. The Residential Committee effectively controls the activities of the Partnership. The Partnership was capitalized with $24,700,000 of contributions representing 250 investor limited partnership units. The offering closed on December 31, 1992. The general partner and affiliates contributed $1,000. The Partnership will terminate December 31, 2041 unless dissolved earlier, pursuant to the provisions of the Partnership Agreement ("Agreement"). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Allocation of Income, Losses and Distributions In accordance with the partnership agreement, distributions of cash flow are allocated 99% to the limited partners and 1% to the general partner, until the limited partners have received a 6% noncumulative, noncompounded annual rate of return on their net invested capital, at which point the remainder is distributed 90% to the limited partners and 10% to the general partner. Distributions of cash other than cash flow are distributed in accordance with the partnership agreement, with no less than 1% allocated to the general partner. Income is allocated to the partners in proportion to the cash available for distribution to the partners; losses are allocated 90% to the limited partners and 10% to the general partner. If there is no cash available for distribution, income is allocated 90% to the limited partners and 10% to the general partner. Cash and Cash Equivalents Cash and cash equivalents includes cash on hand and in banks, certificates of deposit, and money market funds with original maturities less than 90 days. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Security deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in other assets. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. F-13 4761 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Investment Properties Investment properties are stated at cost. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Deferred Costs Organization costs are amortized on the straight-line basis over five years. Acquisition fees are amortized on the straight-line basis over 27.5 and 40 years. Deferred financing costs are amortized as interest expense on the straight-line basis over the life of the loan. Depreciation The Partnership provides for depreciation of buildings and improvements on the straight-line basis over their estimated useful lives of 40 years for buildings and improvements and 3 to 15 years for personal property. Leases The Partnership generally leases apartment units for twelve-month terms or less. The Partnership recognizes income as earned on its leases. Advertising The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $75,000 and $64,000, for the years ended December 31, 1997 and 1996, respectively. Income Taxes Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Reclassification Certain amounts from 1996 have been reclassified to conform to the 1997 presentation. 2. RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all partnership activities. The Partnership paid property management fees based upon collected gross rental revenues for property management services as noted below for the years ended December 31, 1997 and 1996. Such fees are included in operating expenses on the statements of operations and are reflected in the following table. The Partnership Agreement provides for reimbursement to the General Partner and its affiliates for costs incurred in connection with the administration of Partnership activities. The General Partner and its affiliates received reimbursements and fees as reflected in the following table:
FOR THE YEARS ENDED DECEMBER 31, ------------------- 1997 1996 -------- -------- Property management fees.................................... $259,000 $254,000 Reimbursements for services................................. 41,000 80,000
F-14 4762 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Property management fees are included in operating expenses. Reimbursements for services paid during 1997, are primarily included in general and administrative expenses. An $80,000 fee, relating to the 1996 mortgage financing, is being amortized as interest expense. During 1997, an affiliate of the General Partner acquired, pursuant to a tender offer, for a purchase price of $30,000 per unit, approximately 16.6% of the total limited partnership units of the Partnership. 3. DEFERRED COSTS Deferred costs (which are included in other assets) are as follows:
DECEMBER 31, ----------------------- 1997 1996 ---------- ---------- Organization costs.......................................... $ 167,000 $ 167,000 Acquisition costs........................................... 1,805,000 1,805,000 Financing costs............................................. 801,000 801,000 ---------- ---------- 2,773,000 2,773,000 Less: Accumulated amortization.............................. 661,000 489,000 ---------- ---------- $2,112,000 $2,284,000 ========== ==========
4. MORTGAGE NOTE PAYABLE On January 5, 1996, the Partnership obtained a mortgage loan in the amount of $16,000,000 secured by all of the properties. The loan amount was allocated $2,080,000, $4,320,000, $5,120,000 and $4,480,000 to Chesapeake Apartments, Covington Creek Apartments, Northside Circle Apartments and Webb Crossing Apartments, respectively. The mortgage loan bears interest at an initial rate of 7.27% (until the "Optional Prepayment Date", as defined), requires monthly principal and interest payments of approximately $109,000 and matures in February 2026. The Partnership has the option to prepay the mortgage loan without penalty on, or three months before, February 1, 2003 (the "Optional Prepayment Date"). If the Partnership does not elect to prepay the loan, the interest rate will be adjusted to the greater of 12.27% or a "Treasury Rate" (as defined) plus 7.75 percentage points. The Partnership was required to fund approximately $278,000 in reserves at closing to complete certain required capital improvements to the properties, and establish tax and insurance escrows. The Partnership is also required to fund an ongoing replacement reserve. In connection with the closing, Two Winthrop was replaced as the General Partner of the Partnership with WAI Associates Limited Partnership. The lender required the transfer of the general partnership interest as a condition to making the loan to assure that the Partnership and its general partner are single purpose entities, formed solely for the purpose of owning and operating the properties. As of December 31, 1997 principal payments are required as follows: 1998.................................................... $ 158,000 1999.................................................... 170,000 2000.................................................... 179,000 2001.................................................... 196,000 2002.................................................... 211,000 Thereafter.............................................. 14,825,000 ----------- Total......................................... $15,739,000 ===========
F-15 4763 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. DISTRIBUTIONS For the year ended December 31, 1997, distributions of $904,000 ($3,616 per unit) and $51,000 were paid to the limited partners and General Partner, respectively. The Partnership distributed $17,410,000 ($69,640 per unit) to the Limited Partners during the year ended December 31, 1996. The General Partner was entitled to $308,000 for the year ended December 31, 1996. The General Partner was underpaid $97,000 of the 1996 distributions which was adjusted for in 1997. The distributions included approximately $14,923,000 of proceeds from a January 1996 mortgage financing. 6. TAXABLE INCOME The Partnership's taxable income for 1997 and 1996, differs from that for financial reporting purposes, as follows:
1997 1996 -------- -------- Net income for financial reporting purposes................. $417,000 $487,000 Accelerated depreciation on real and personal property...... (57,000) (78,000) Deferred rental income...................................... 16,000 -- -------- -------- Taxable income.................................... $376,000 $409,000 ======== ========
F-16 4764 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 F-17 4765 ITEM 7. FINANCIAL STATEMENTS WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1996 INDEX
PAGE ---- Report of Independent Public Accountants.................... F-19 Financial Statements: Balance Sheets as of December 31, 1996 and 1995........... F-20 Statements of Operations for the Years Ended December 31, 1996 and 1995.......................................... F-21 Statements of Partners' Capital for the Years Ended December 31, 1996 and 1995............................. F-22 Statements of Cash Flows for the Years Ended December 31, 1996 and 1995.......................................... F-23 Notes to Financial Statements............................. F-24
F-18 4766 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Winthrop Apartment Investors Limited Partnership: We have audited the accompanying balance sheets of Winthrop Apartment Investors Limited Partnership (a Maryland limited partnership) as of December 31, 1995 and the related statements of operations, changes in partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Winthrop Apartment Investors Limited Partnership as of December 31, 1995, the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts February 2, 1996 F-19 4767 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP BALANCE SHEETS (IN THOUSANDS, EXCEPT UNIT DATA) ASSETS
DECEMBER 31, ------------------ 1996 1995 ------- ------- Real Estate, At Cost: Land...................................................... $ 3,666 $ 3,666 Buildings and improvements, net of accumulated depreciation of $2,304 (1996) and $1,706 (1995)........ 12,889 13,273 ------- ------- 16,555 16,939 Other Assets: Cash and cash equivalents................................. 1,220 3,455 Escrow deposits and replacement reserves.................. 756 -- Other assets.............................................. 417 306 Deferred costs, net of accumulated amortization of $489 (1996) and $293 (1995)................................. 2,284 1,799 ------- ------- Total Assets...................................... $21,232 $22,499 ======= ======= LIABILITIES AND PARTNERS' CAPITAL Liabilities: Mortgage payable.......................................... $15,885 $ -- Accounts payable and accrued expenses..................... 458 381 Security deposits......................................... 127 125 ------- ------- Total Liabilities................................. 16,470 506 ------- ------- Partners' capital: Limited partners' capital; 250 units authorized, issued and outstanding........................................ 5,062 22,013 General partners deficit.................................. (300) (20) ------- ------- Total Partners' Capital........................... 4,762 21,993 ------- ------- Total Liabilities and Partners' Capital........... $21,232 $22,499 ======= =======
See notes to financial statements F-20 4768 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT UNIT DATA)
YEARS ENDED DECEMBER 31, ---------------- 1996 1995 ------- ------ Income: Rental.................................................... $ 4,884 $4,713 Other..................................................... 255 231 Interest.................................................. 59 204 ------- ------ Total Income...................................... 5,198 5,148 ------- ------ Expenses: Mortgage interest......................................... 1,187 -- Leasing................................................... 208 191 General and administrative................................ 399 306 Management fees........................................... 254 243 Utilities................................................. 375 392 Repairs and maintenance................................... 634 626 Painting and decorating................................... 155 138 Insurance................................................. 175 180 Taxes..................................................... 564 564 Amortization.............................................. 162 82 Depreciation.............................................. 598 538 ------- ------ Total expenses.................................... 4,711 3,260 ------- ------ Net income........................................ $ 487 $1,888 ======= ====== Net income allocated to general partners.................... $ 28 $ 75 ======= ====== Net income allocated to limited partners.................... $ 459 $1,813 ======= ====== Net income per Unit of Limited Partnership Interest......... $ 1,836 $7,252 ======= ====== Distributions per Unit of Limited Partnership Interest...... $69,640 $8,700 ======= ======
See notes to financial statements F-21 4769 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP STATEMENT OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1996 AND 1995 (IN THOUSANDS, EXCEPT UNIT DATA)
UNITS OF LIMITED GENERAL LIMITED TOTAL PARTNERSHIP PARTNER'S PARTNER'S PARTNER'S INTEREST DEFICIT CAPITAL CAPITAL ----------- --------- --------- --------- Balance -- January 1, 1995.......................... 250 $ (5) $ 22,375 $ 22,370 Distributions..................................... -- (90) (2,175) (2,265) Net income........................................ -- 75 1,813 1,888 --- ----- -------- -------- Balance -- December 31, 1995........................ 250 (20) 22,013 21,993 Distributions..................................... -- (308) (17,410) (17,718) Net income........................................ -- 28 459 487 --- ----- -------- -------- Balance -- December 31, 1996........................ 250 $(300) $ 5,062 $ 4,762 === ===== ======== ========
See notes to financial statements. F-22 4770 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------ 1996 1995 ---------- --------- Cash Flows from Operating Activities: Net income................................................ $ 487 $ 1,888 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 598 538 Amortization........................................... 196 82 Changes in assets and liabilities: Increase in escrow deposits.......................... (533) -- Increase in other assets............................. (111) (67) Increase in accounts payable and accrued expenses.... 77 56 Increase (decrease) in security deposits liability... 2 (3) -------- ------- Net cash provided by operating activities......... 716 2,494 -------- ------- Cash Flows from Investing Activities: Additions to real estate.................................. (214) (235) Reserve for replacement deposits.......................... (223) -- -------- ------- Cash (used in) investing activities.................... (437) (235) -------- ------- Cash Flows from Financing Activities: Proceeds from mortgage financings......................... 16,000 -- Principal payments on mortgage............................ (115) -- Deferred financing costs.................................. (681) (120) Distributions............................................. (17,718) (2,265) -------- ------- Net cash (used in) financing activities........... (2,514) (2,385) -------- ------- Net (decrease) in cash and cash equivalents................. (2,235) (126) Cash and Cash Equivalents, Beginning of Year................ 3,455 3,581 -------- ------- Cash and Cash Equivalents, End of Year...................... $ 1,220 $ 3,455 ======== ======= Supplemental Disclosure of Cash Flow Information -- Cash paid for interest......................................... $ 1,088 $ -- ======== =======
See notes to financial statements. F-23 4771 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996 AND 1995 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Winthrop Apartment Investors Limited Partnership (the "Partnership") was organized on September 5, 1991 under the laws of the State of Maryland for the purpose of acquiring, renovating, operating and managing residential apartment complexes. The Partnership's properties are located in Austin, Texas (Chesapeake Apartments); Irving, Texas (Covington Creek Apartments); Fulton County, Georgia (Webb Bridge Crossing Apartments); and Atlanta, Georgia (Northside Circle Apartments). The general partner of the Partnership is WAI Associates Limited Partnership, a Texas limited Partnership ("WAI" or the "General Partner"), whose sole general partner is WAI Properties, Inc., a Texas corporation and a wholly owned subsidiary of First Winthrop Corporation ("First Winthrop"). The sole limited partner of WAI is Winthrop Financial Associates ("WFA"). First Winthrop is a wholly owned subsidiary of WFA. The general partner of the Partnership was, until January 1996, Two Winthrop Limited Partnership ("Two Winthrop") an affiliate of WAI. The Partnership was capitalized with $24,700,000 of contributions representing 50 investor limited partnership units. The offering closed on December 31, 1992. The general partner and affiliates contributed $1,000. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Accounting Change On January 1, 1996, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the asset's carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The adoption of the SFAS has no effect on the Partnership's financial statements. Income Taxes Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Deferred Costs Organization costs are amortized on the straight-line basis over five years. Acquisition fees are amortized on the straight-line basis over 27.5 and 40 years. Deferred financing costs are amortized on the straight-line basis over the life of the loan. Financing fees paid to the lender are amortized as interest expense over the life of the loan. Depreciation The Partnership provides for depreciation of buildings and improvements on the straight-line basis over their estimated useful lives of 40 years for buildings and improvements and 3 to 15 years for personal property. F-24 4772 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Concentration of Credit Risk Principally all of the Partnership's cash and cash equivalents consist of a mutual fund that invests in U.S. treasury bills and repurchase agreements with original maturity dates of three months or less. Reclassification Certain amounts from 1995 have been reclassified to conform to the 1996 presentation. 2. RELATED PARTY TRANSACTIONS Winthrop Management, an affiliate of the managing general partner, is paid an annual property management fee equal to 5% of gross receipts from all Partnership properties managed by Winthrop Management. Such fees aggregated $254,000 and $243,000 in 1996 and 1995, respectively. Winthrop Management was also paid an $80,000 fee relating to the mortgage financing (see Note 4). 3. DEFERRED COSTS The following is a summary of the deferred costs:
DECEMBER 31, ----------------------- 1996 1995 ---------- ---------- Organization costs.......................................... $ 167,000 $ 167,000 Acquisition costs........................................... 1,805,000 1,805,000 Financing costs............................................. 801,000 120,000 ---------- ---------- 2,773,000 2,092,000 Less -- Accumulated amortization............................ 489,000 293,000 ---------- ---------- $2,284,000 $1,799,000 ========== ==========
4. MORTGAGE PAYABLE On January 5, 1996, the Partnership obtained a mortgage loan in the amount of $16,000,000 secured by all of the properties. The loan amount was allocated $2,080,000, $4,320,000, $5,120,000 and $4,480,000 to Chesapeake Apartments, Covington Creek Apartments, Northside Circle Apartments and Webb Crossing Apartments, respectively. The mortgage loan bears interest at an initial rate of 7.27% (until the "Optional Prepayment Date", as defined), requires monthly principal and interest payments of approximately $109,000 and matures in February 2026. The Partnership has the option to prepay the mortgage loan without penalty on, or three months before, February 1, 2003 (the "Optional Prepayment Date"). If the Partnership does not elect to prepay the loan, the interest rate will be adjusted to the greater of 12.27% or a "Treasury Rate" (as defined) plus 7.75 percentage points. The Partnership was required to fund approximately $278,000 in reserves at closing to complete certain required capital improvements to the properties, and establish tax and insurance escrows. The Partnership is also required to fund an ongoing replacement reserve. In connection with the closing, Two Winthrop was replaced as the General Partner of the Partnership with WAI Associates Limited Partnership. The lender required the transfer of the general partnership interest as a condition to making the loan to assure that the Partnership and its general partner are single purpose entities, formed solely for the purpose of owning and operating the properties. F-25 4773 WINTHROP APARTMENT INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) As of December 31, 1996 principal payments are required as follows: 1997................................................... $ 163,000 1998................................................... 175,000 1999................................................... 188,000 2000................................................... 202,000 2001................................................... 218,000 Thereafter............................................. 14,939,000 ----------- Total........................................ $15,885,000 ===========
5. ALLOCATION OF INCOME, LOSSES AND DISTRIBUTIONS In accordance with the partnership agreement, cash flow distributions shall be allocated 99% to the limited partners and 1% to the general partner, until the limited partners have received a 6% noncumulative, noncompounded annual rate of return on their net invested capital, at which point the remainder shall be distributed 90% to the limited partners and 10% to the general partner. Distributions of cash other than cash flow shall be distributed in accordance with the partnership agreement with no less than 1% allocated to the general partner. Income shall be allocated to the partners in proportion to the cash available for distribution to the partners; losses shall be allocated 90% to the limited partners and 10% to the general partner. If there is no such cash available for distribution, income will be allocated 90% to the limited partners and 10% to the general partner. 6. DISTRIBUTIONS The Partnership distributed $17,410,000 ($69,640 per unit) to the Limited Partners during the year ended December 31, 1996. The General Partner was entitled to $308,000 for the year ended December 31, 1996. The General Partner was underpaid $97,000 of the 1996 distributions which will be adjusted for in 1997. The distributions included approximately $14,923,000 of proceeds from a January 1996 mortgage financing (see Note 4). For the year ended December 31, 1995, distributions of $2,175,000 ($8,700 per unit) and $90,000 were paid to the limited and General Partners, respectively. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents of $1,220,000 approximates fair value due to the short term nature of such instruments. The carrying amount of the Partnership's mortgage note of $15,885,000 approximates its fair value based on the recent financing of such note. 8. TAXABLE INCOME The Partnership's taxable income for 1996 and 1995 differs from that for financial reporting purposes as follows:
1996 1995 -------- ---------- Net income for financial reporting purposes................. $487,000 $1,888,000 Accelerated depreciation on real and personal property...... (78,000) (147,000) Assets with estimated useful lives of greater than one year for tax purposes.......................................... -- 95,000 Taxable income.................................... -- -- -------- ---------- $409,000 $1,836,000 ======== ==========
F-26 4774 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 4775 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 4776 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 September , 1998 A-3 4777 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF WINTHROP TEXAS 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 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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 apartment properties to holding an interest in our large portfolio of properties. - 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 4778 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 Winthrop Texas 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-29 Expected Benefits of the Offer............... S-30 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-35 Extension of Tender Period; Termination; Amendment.................................. S-36 Proration.................................... S-36 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-41 General...................................... S-41 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71
i 4779
PAGE ---- Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 4780 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 Texas 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 4781 - 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 % Partnership Preferred 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 4782 - 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 $1,000 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 distributions of $ 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 small number of apartment 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 4783 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 4784 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 100% of 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? 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: 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 4785 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 4786 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. 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. 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 5 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. 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 S-7 4787 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. 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 Code. The particular tax consequences to you of the exchange 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 small number of apartment 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. S-8 4788 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 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 S-9 4789 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 4790 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, 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. 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 S-11 4791 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 S-12 4792 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. 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." S-13 4793 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 4794 - 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 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 4795 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 4796 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 4797 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, unlike the general partner of the AIMCO Operating Partnership, the general partner of your partnership is entitled to compensation services provided in its capacity as 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $25,000 beginning in 1992 and increasing annually at a rate of 6% beginning in 1992 from your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $118,389 in 1996, $137,696 in 1997 and $67,761 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 Your Partnership and its Property. Winthrop Texas Investors Limited Partnership is a Maryland limited partnership which was formed on September 3, 1991 for the purpose of owning and operating a small number of apartment properties located in Dallas, Texas and Ft. Worth, Texas, known as "Enfield Apartments" and "Salem Park Apartments," respectively. In 1991, it completed a private placement of units that raised net proceeds of approximately $12,800,000. Enfield Apartments consists of 286 apartment units and Salem Park Apartments consists of 168 apartment units. Your partnership has no employees. S-18 4798 Property Management. Since November 1997, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2041, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had current mortgage notes outstanding of $4,820,785 and of $3,122,921, both payable to Metropolitan Life, which bear interest at a rate of 7.61%. Both mortgage debts are due in December 2002. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 4799 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 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 4800
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 4801 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 4802
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 4803 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 4804 SUMMARY FINANCIAL INFORMATION OF WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP The summary financial information of Winthrop Texas Investors Limited Partnership for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Winthrop Texas Investors Limited Partnership 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 of Your Partnership" included herein. See "Index to Financial Statements." WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING DATA: Total Revenues............... 2,598,557 0 5,273,000 5,239,000 5,148,000 4,777,570 4,350,442 Net Income/(Loss)............ 161,327 0 417,000 487,000 1,888,000 1,733,155 1,442,988 BALANCE SHEET DATA: Real Estate, Net of Accumulated Depreciation... 16,048,303 #VALUE! 16,286,000 16,555,000 16,939,000 17,242,431 17,549,172 Total Assets................. 20,535,473 0 20,588,000 21,232,000 22,499,000 22,824,380 23,106,140 Mortgage Notes Payable, including Accrued Interest................... 15,660,016 0 15,739,000 15,885,000 0 0 0 Partners' Capital/(Deficit).......... 4,385,327 0 4,224,000 4,762,000 21,993,000 22,371,426 22,650,646
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $1,000
S-25 4805 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. 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 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 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. S-26 4806 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 Code. 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 therefore 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 apartment 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 S-27 4807 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 year ended December 30, 1997 were $1,000 per unit. 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 an 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 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. 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. S-28 4808 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 4809 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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. S-30 4810 - 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 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 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 4811 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 4812 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 4813 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. 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 S-34 4814 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." 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. 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. S-35 4815 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, (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 9:00 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 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, Denver, Colorado 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. S-36 4816 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. S-37 4817 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 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 S-38 4818 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 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 S-39 4819 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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. 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 S-40 4820 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. 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. DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are a class of Partnership Preferred Units of the AIMCO Operating Partnership. S-41 4821 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 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 S-42 4822 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 payment. 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 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 S-43 4823 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-44 4824 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-45 4825 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-46 4826 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-47 4827 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-48 4828 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-49 4829 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 4830 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-51 4831 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 4832 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 4833 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership property................ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 4834 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 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, a third party expert, 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 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 year ended December 30, 1997 were $1,000. 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-55 4835 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-56 4836 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 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. S-57 4837 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 4838 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 September 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 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 property was 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, S-59 4839 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 4840 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Enfield Apartments and Salem Park Apartments. 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 2041. 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, disposes of, finance conduct any business that may be lawfully conducted by and otherwise deal with your partnership's property. a limited partnership organized pursuant to the Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as agreement of limited partnership, your partnership may amended from time to time, or any successor to such perform all acts necessary, advisable or convenient to statute) (the "Delaware Limited Partnership Act"), the business of your partnership including borrowing provided that such business is to be conducted in a 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-61 4841 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 128 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 The general partner may, without the consent of the in connection with the admission of any additional OP limited partners, sell additional limited partnership Unitholder. See "Description of OP Units -- Management interests and, with the consent of the limited by the AIMCO GP" in the accompanying Prospectus. partners, issue other equity interests. Such interests Subject to Delaware law, any additional partnership may be sold on such terms and conditions and the interests may be issued in one or more classes, or one additional limited partners shall have such rights and or more series of any of such classes, with such obligations as the general partner shall determine. In designations, preferences and relative, partici- the event the general partner sells additional limited pating, optional or other special rights, powers and partner interests, prior to the sale of such interests, duties as shall be determined by the general partner, the general partner will offer such interests to the in its sole and absolute discretion without the original 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, your partnership may contract with the funds or other assets to its subsidiaries or other general partner or its affiliates for various goods and persons in which it has an equity investment, and such services, including without limitation, insurance, persons may borrow funds from the AIMCO Operating insurance brokerage, mortgage brokerage in connection Partnership, on terms and conditions established in the with financings and refinancings of your partnership's sole and absolute discretion of the general partner. To property, management, rehabilitation, construction the extent consistent with the business purpose of the supervision, leasing and property brokerage. The AIMCO Operating Partnership and the permitted compensation paid under such contracts must be at the activities of the general partner, the AIMCO Operating then prevailing market rates in the vicinity of your Partnership may transfer assets to joint ventures, partnership's property. Your partnership may not make limited liability companies, partnerships, loans to the general partner or its affiliates but the corporations, business trusts or other business general partner and its affiliates may lend money to entities in which it is or thereby becomes a your partnership if such loan is evidenced by a participant upon such terms and subject to such promissory note, bears interest at a commercially conditions consistent with the AIMCO Operating Part- reasonable rate not in excess of the lesser of the nership Agreement and applicable law as the general maximum rate permitted by law and 3% above the "base partner, in its sole and absolute discretion, believes rate" of the First National Bank of Boston and the to be advisable. Except as expressly permitted by the obligation is subordinate to the obligations of your AIMCO Operating Partnership Agreement, neither the partnership to pay unrelated creditors. 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, 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 other things, its ability to incur indebtedness. See "Risk Factors -- Risks of Significant Indebtedness" in the accompanying Prospectus.
S-62 4842 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 kept with a statement of the purpose of such demand and at by your partnership which lists the names of all such OP Unitholder's own expense, to obtain a current limited partners and the number of units owned by each list of the name and last known business, residence or limited partner. mailing address of the general partner and each other OP Unitholder.
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, 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 negligence or indemnification of AIMCO, or any director or officer of misconduct on the part of such person. In addition, the AIMCO (in its capacity as the previous general partner general partner and their affiliates are entitled to of the AIMCO Operating Partnership), the general indemnification by your partnership against any loss, partner, any officer or director of general partner or damage, liability, cost or expense sustained by it or the AIMCO Operating Partnership and such other persons them in connection with your partnership, provided that as the general partner may designate from and against such loss, damage, liability, cost or expense was not all losses, claims, damages, liabilities, joint or the result of negligence or misconduct by such person. several, expenses (including legal fees), fines, Any such indemnity provided shall be paid, from and settlements and other amounts incurred in connection only to the extent of, partnership assets. with any actions relating to the operations of the Notwithstanding any other provision to the contrary, AIMCO Operating Partnership, as set forth in the AIMCO the general partner and its affiliates will be liable Operating Partnership Agreement. The Delaware Limited and will not be entitled to indemnity for any loss, Partnership Act provides that subject to the standards damage or cost resulting from violations of Federal or and restrictions, if any, set forth in its partnership state securities laws in connection with the units agreement, a limited partnership may, and shall have unless there has been a successful adjudication of the the power to, indemnify and hold harmless any partner merits of each count involving such securities or other
S-63 4843 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP law violations, such claims have been dismissed with person from and against any and all claims and demands prejudice on the merits by a court of competent whatsoever. It is the position of the Securities and jurisdiction or a court of competent jurisdiction Exchange Commission that indemnification of directors approves a settlement of such claims. In any claim for and officers for liabilities arising under the indemnification for Federal or state securities law Securities Act is against public policy and is violations, the party seeking indemnification must unenforceable pursuant to Section 14 of the Securities place before the court the position of the SEC and any Act of 1933. 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 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. A general partner may withdraw AIMCO Operating Partnership by the OP Unitholders with voluntarily from your partnership only if there is or without cause. Under the AIMCO Operating Partnership another general partner or a successor is elected. The Agreement, the general partner may, in its sole general partner may admit an additional or substitute discretion, prevent a transferee of an OP Unit from general partner with the consent of limited partners becoming a substituted limited partner pursuant to the owning more than 50% of the units. A limited partner AIMCO Operating Partnership Agreement. The general may not transfer his interests without the consent of partner may exercise this right of approval to deter, the general partner which may be withheld at the sole delay or hamper attempts by persons to acquire a discretion of the general 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 to comply with in the AIMCO Operating Partnership Agreement, whereby applicable tax laws and to cure any ambiguities. Other the general partner may, without the consent of the OP amendments to your partnership's agreement of limited Unitholders, amend the AIMCO Operating Partnership partnership must be approved by the limited partners Agreement, amendments to the AIMCO Operating owning more than 50% of the units and the general Partnership Agreement require the consent of the partner. Certain specified provisions of your holders of a majority of the outstanding Common OP partnership's agreement of limited partnership require Units, excluding AIMCO and certain other limited the consent of all limited partners. Other specified exclusions (a "Majority in Interest"). Amendments to provisions which adversely affect the rights or the AIMCO Operating Partnership Agreement may be increase the obligations of a partner must be approved proposed by the general partner or by holders of a by such affected partner. No amendment to your Majority in Interest. Following such proposal, the partnership's agreement of limited partnership may be general partner will submit any proposed amendment to made that affects the obligation of the limited the OP Unitholders. The general partner will seek the partners to make their required capital contributions written consent of the OP Unitholders on the proposed or affect the timing or amount of the fees to be paid amendment or will call a meeting to vote thereon. See by your partnership under your partnership's agreement "Description of OP Units -- Amendment of the AIMCO of limited partnership. Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives $25,000 beginning in 1992 and increasing annu- capacity as general partner of the AIMCO Operating ally at a rate of 6% beginning in 1992. Moreover, the Partnership. In addition, the AIMCO Operating Part- general partner or certain affiliates may be entitled nership is responsible for all expenses incurred to compensation for additional services rendered. 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-64 4844 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 any debts, negligence, no OP Unitholder has personal liability for 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 has been fully paid, no ment in the AIMCO Operating Partnership. However, the limited partner shall, 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, 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 and its affiliates may engage in or possess an interest absolute discretion, believes are advisable. The AIMCO in other business ventures of every nature and Operating Partnership Agreement expressly limits the description, including, without limitation, real estate liability of the general partner by providing that the business ventures, whether or not such other general partner, and its officers and directors will enterprises shall be in competition with any activities not be liable or accountable in damages to the AIMCO of your 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 4845 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 or the merger or law or by the AIMCO Operating its interest in the AIMCO Operating other reorganization of Partnership Agree- Part-
S-66 4846 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS your partnership and authorize the ment, the affirmative vote or nership or the admission of a issuance of other equity interests consent of holders of at least 50% successor general partner. in your partnership. of the outstanding Preferred OP A general partner may cause the Units will be necessary for Under the AIMCO Operating Partner- dissolution of the your partnership effecting any amendment of any of ship Agreement, the general partner by retiring. Your partnership may the provisions of the Partnership has the power to effect the be continued by the remaining Unit Designation of the Preferred acquisition, sale, transfer, general partner or, if none, the OP Units that materially and exchange or other disposition of limited partners may agree to adversely affects the rights or any assets of the AIMCO Operating continue your partnership by preferences of the holders of the Partnership (including, but not electing a successor general Preferred OP Units. The creation or limited to, the exercise or grant partner by unanimous written issuance of any class or series of of any conversion, option, consent within 120 days after the partnership units, including, privilege or subscription right or retirement of the general partner. 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 Cash Flow 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 as de- and from time to time on or after in its sole and absolute discretion termined by the general partner, the fifth anniversary of the issue determine, of Available Cash (as and in any event shall be made date of the Preferred OP Units, the defined in the AIMCO Operating within 60 days after the close of AIMCO Operating Partnership may Partnership Agreement) generated by each fiscal year. 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. Your dividend rate on the most recently with respect to such quarter, in partnership has made distributions issued AIMCO non-convertible accordance with their respective in the past and is projected to preferred stock which ranks on a interests in the AIMCO Operating make distributions in 1998. parity with its Class H Cumu- Partnership on such record date. Holders of any other Pre-
S-67 4847 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 who is not a Preferred OP Units and the OP Units. The AIMCO Operating Part- minor or incompetent, except in Preferred OP Units are not listed nership Agreement restricts the limited situations, and such person on any securities exchange. The transferability of the OP Units. may be substituted as a limited Preferred OP Units are subject to Until the expiration of one year partner provided that: (1) the restrictions on transfer as set from the date on which an OP transfer complies with the forth in the AIMCO Operating Unitholder acquired OP Units, then-applicable rules and Partnership Agreement. subject to certain exceptions, such regulations of any governmental OP Unitholder may not transfer all authority with jurisdiction over Pursuant to the AIMCO Operating or any portion of its OP Units to the disposition, (2) except in Partnership Agreement, until the any transferee without the consent specified circumstances, the expiration of one year from the of the general partner, which interest transferred is not less date on which a holder of Preferred consent may be withheld in its sole than 1/2 unit, (3) a written OP Units acquired Preferred OP and absolute discretion. After the assignment has been duly executed Units, subject to certain expiration of one year, such OP and acknowledged by the assignor exceptions, such holder of Unitholder has the right to and assignee, (4) the transfer, Preferred OP Units may not transfer transfer all or any portion of its when added to all other assignment all or any portion of its Pre- OP Units to any person, subject to taking place in the preceding 12 ferred OP Units to any transferee the satisfaction of certain month does not result in without the consent of the general conditions specified in the AIMCO termination of your partnership for partner, which consent may be Operating Partnership Agreement, tax purposes, (5) the approval of withheld in its sole and absolute including the general partner's the general partner which may be discretion. After the expiration of right of first refusal. See withheld in the sole and absolute one year, such holders of Preferred "Description of OP Units -- discretion of the general partner OP Units has the right to transfer Transfers and Withdrawals" in the has been granted and (6) the all or any portion of its Preferred accompanying Prospectus. assignor and assignee have complied OP Units to any person, subject to with such other conditions the satisfaction of
S-68 4848 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS as set forth in your partnership's certain conditions specified in the After the first anniversary of agreement of limited partnership. AIMCO Operating Partnership Agree- becoming a holder of Common OP There are no redemption rights ment, including the general Units, an OP Unitholder has the associated with your units. partner's 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 4849 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives $25,000 beginning in 1992 and increasing annually at a rate of 6% beginning in 1992 for services as general partner of your partnership and may receive reimbursement for expenses generated in its capacity as such. The property manager received management fees of 118,389 in 1996, 137,696 in 1997 and 67,761 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-70 4850 YOUR PARTNERSHIP GENERAL Winthrop Texas Investors Limited Partnership is a Maryland limited partnership which raised net proceeds of approximately $12,800,000 in 1991 through a private offering. The promoter for the private offering of your partnership was Winthrop Securities Co., Inc. Insignia acquired your partnership in November 1997. AIMCO acquired Insignia in October, 1998. There are currently a total of 127 limited partners of your partnership and a total of 128 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the small number of apartment properties described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on September 3, 1991 for the purpose of owning and operating a small number of apartment properties located in Dallas, Texas and Ft. Worth, Texas, known as "Enfield Apartments" and "Salem Park Apartments," respectively. There are 286 apartment units in Enfield Apartments. The total rentable square footage is 208,383 square feet and the average annual rent per apartment unit is $5,366. Salem Park Apartments has 168 apartment units. The total rentable square footage is 156,876 square feet. The average annual rent per apartment unit is 6,233. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since November 1997, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $118,389, $137,696 and $67,761, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2041 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 4851 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had current mortgage notes outstanding on Enfield Apartments of $4,820,785 and Salem Park Apartments of $3,122,921 payable to Metropolitan Life, which bear interest at a rate of 7.61%. Such mortgage notes are due December 2002. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 4852 Below is selected financial information for Winthrop Texas Investors Limited Partnership taken from the financial statements described above. See "Index to Financial Statements."
WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... 1,662,921 Not 1,191,000 1,220,000 3,455,000 3,581,214 3,508,588 Land & Building.............. 19,317,241 Available 19,214,000 18,859,000 18,645,000 18,410,780 18,223,458 Accumulated Depreciation..... (3,268,938) 0 (2,928,000) (2,304,000) (1,706,000) (1,168,349) (674,286) Other Assets................. 2,824,249 0 3,111,000 3,457,000 2,105,000 2,000,735 2,048,380 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ 20,535,473 0 20,588,000 21,232,000 22,499,000 22,824,380 23,106,140 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... 15,660,016 15,739,000 15,885,000 0 0 0 Other Liabilities............ 490,130 625,000 585,000 506,000 452,954 455,494 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 16,150,146 0 16,364,000 16,470,000 506,000 452,954 455,494 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit)... 4,385,327 0 4,224,000 4,762,000 21,993,000 22,371,426 22,650,646 =========== =========== =========== =========== =========== =========== ===========
WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue..................... 2,486,404 4,961,000 4,925,000 4,713,000 4,484,341 4,078,483 Other Income....................... 112,153 312,000 314,000 435,000 293,229 271,959 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. 2,598,557 0 5,273,000 5,239,000 5,148,000 4,777,570 4,350,442 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 1,063,103 0 2,260,000 2,187,000 1,770,000 1,656,163 1,533,444 General & Administrative........... 129,296 117,000 93,000 306,000 310,030 334,818 Depreciation....................... 340,500 681,000 679,000 620,000 576,416 534,450 Interest Expense................... 646,470 1,280,000 1,267,000 0 0 0 Property Taxes..................... 257,861 518,000 526,000 564,000 501,806 504,742 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ 2,437,230 0 4,856,000 4,752,000 3,260,000 3,044,415 2,907,454 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income................ 161,327 0 417,000 487,000 1,888,000 1,733,155 1,442,988 ========== ========== ========== ========== ========== ========== ==========
S-73 4853 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Due to this partnership being recently acquired, very little discussion is available for variances. Results of Operations Six Months Ended June 30, 1998 Due to this partnership being a recent acquisition, no data was available for the six months ended June 30, 1997. Net Income Your partnership recognized net income of $161,327 for the six months ended June 30, 1998. Revenues Rental and other property revenues from the partnership's property totaled $2,598,557 for the six months ended June 30, 1998. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,063,103 for the six months ended June 30, 1998. Management expenses totaled $129,295 for the six months ended June 30, 1998. General and Administrative Expenses General and administrative expenses totaled $129,296 for the six months ended June 30, 1998. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $646,470 for the six months ended June 30, 1998. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $417,000 for the year ended December 31, 1997, compared to $487,000 for the year ended December 31, 1996. The decrease in net income of $70,000, or 14.37% was primarily the result of an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $5,273,000 for the year ended December 31, 1997, compared to $5,239,000 for the year ended December 31, 1996, an increase of $34,000, or 0.65%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $2,260,000 for the year ended December 31, 1997, compared to $2,187,000 for the year ended December 31, S-74 4854 1996, an increase of $73,000 or 3.34%. Management expenses totaled $259,000 for the year ended December 31, 1997, compared to $254,000 for the year ended December 31, 1996, an increase of $5,000, or 1.97%. General and Administrative Expenses General and administrative expenses totaled $117,000 for the year ended December 31, 1997 compared to $93,000 for the year ended December 31, 1996, an increase of $24,000 or 25.81%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,280,000 for the year ended December 31, 1997, compared to $1,267,000 for the year ended December 31, 1996, an increase of $13,000, or 1.03%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized net income of $487,000 for the year ended December 31, 1996, compared to $1,888,000 for the year ended December 31, 1995. The decrease in net income of $1,401,000, or 74.21% was primarily the result of an increase in interest expense. Revenues Rental and other property revenues from the partnership's property totaled $5,239,000 for the year ended December 31, 1996, compared to $5,148,000 for the year ended December 31, 1995, an increase of $91,000, or 1.77%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $2,187,000 for the year ended December 31, 1996, compared to $1,770,000 for the year ended December 31, 1995, an increase of $417,000 or 23.56%. The increase in operating expenses is due mainly to an increase in professional and amortization expenses coupled with a reclassification of certain expenses to operating expense that were included in general and administrative expenses at December 31, 1995. Amortization expenses increased due to additional amortization of the deferred legal and mortgage costs associated with the Partnership's refinancing. Management expenses totaled $254,000 for the year ended December 31, 1996, compared to $243,000 for the year ended December 31, 1995, an increase of $11,000, or 4.53%. General and Administrative Expenses General and administrative expenses totaled $93,000 for the year ended December 31, 1996 compared to $306,000 for the year ended December 31, 1995, a decrease of $213,000 or 69.61%. The decrease is primarily due to the reclassification of certain general and administrative expenses for 1995 to operating expenses in 1996. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,267,000 for the year ended December 31, 1996, compared to $0 for the year ended December 31, 1995, an increase of $1,267,000. The increase is due to the partnership securing $16 million in new debt during 1996. S-75 4855 Liquidity and Capital Resources As of June 30, 1998, your partnership had $1,662,921 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 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 in connection with your partnership, provided that such loss, damage, liability, cost or expense was not the result of negligence or misconduct by such person. 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 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 has been 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 the insures any party against any liability for which indemnification is not available pursuant to your partnership's agreement of limited partnership. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 7,650 1995........................................................ 5,500 1996........................................................ 66,000 1997........................................................ 1,000 1998 (through June 30)...................................... 0
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been S-76 4856 limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that there have been no units transferred in sale transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner). BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION - ---- ------------ 1994........................................................ 36,590 1995........................................................ 29,774 1996........................................................ 31,560 1997........................................................ 45,514 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $117,167 1996........................................... 118,389 1997........................................... 137,696 1998 (through June 30)......................... 67,761
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 company paid to the property manager or AIMCO and its affiliates. S-77 4857 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 Winthrop Texas Investors Limited Partnership at December 31, 1997, 1996, 1995 and 1994 and for the years then ended, appearing in this Prospectus Supplement have been audited by Reznick Fedder & Silverman, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-78 4858 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (unaudited)..... F-2 Condensed Statement of Operations for the six months ended June 30, 1998 (unaudited)................................. F-3 Condensed Statement of Cash Flows for the six months ended June 30, 1998 (unaudited)................................. F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-8 Balance Sheet as of December 31, 1997....................... F-9 Statements of Income for the years ended December 31, 1997 and 1996.................................................. F-10 Statements of Partners' Equity (Deficit) for the years ended December 31, 1997 and 1996................................ F-11 Statements of Cash Flows for the years ended December 31, 1997 and 1996............................................. F-12 Notes to Financial Statements............................... F-13 Independent Auditors' Report................................ F-18 Balance Sheets as of December 31, 1995 and 1994............. F-19 Statements of Income for the years ended December 31, 1995 and 1994.................................................. F-20 Statements of Partners' Equity (Deficit) for the years ended December 31, 1995 and 1994................................ F-21 Statements of Cash Flows for the years ended December 31, 1995 and 1994............................................. F-22 Notes to Financial Statements............................... F-23
F-1 4859 WINTHROP TEXAS INVESTORS, LP CONDENSED BALANCE SHEET (UNAUDITED) JUNE 30, 1998 ASSETS Cash and cash equivalents................................... $ 626,704 Receivables and Deposits.................................... 63,229 Restricted Escrows.......................................... 406,326 Other Assets................................................ 784,441 Investment Property: Land...................................................... 1,328,029 Building and related personal property.................... 9,630,883 ---------- 10,958,912 Less: Accumulated depreciation............................ (2,229,213) 8,729,699 ---------- ----------- Total Assets:..................................... $10,610,399 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 37,799 Other Accrued Liabilities................................... 76,159 Property Taxes Payable...................................... 152,529 Tenant Security Deposits.................................... 58,695 Notes Payable............................................... 7,933,642 Partners' Capital........................................... 2,351,575 ----------- Total Liabilities and Partners' Capital........... $10,610,399 ===========
F-2 4860 WINTHROP TEXAS INVESTORS, LP CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 ---------------- Revenues: Rental Income............................................. $1,335,075 Other Income.............................................. 36,596 ---------- Total Revenues:................................... 1,371,671 Expenses: Operating Expenses........................................ 534,335 General and Administrative Expenses....................... 74,134 Depreciation Expense...................................... 207,275 Interest Expense.......................................... 322,549 Property Tax Expense...................................... 153,107 ---------- Total Expenses:................................... 1,291,400 ---------- Net (loss)........................................ $ 80,271 ==========
F-3 4861 WINTHROP TEXAS INVESTORS, LP CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 Operating Activities: Net Income (loss)......................................... $ 80,271 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 207,275 Changes in accounts: Receivables and deposits and other assets............ 46,060 Accounts Payable and accrued expenses................ (161,275) --------- Net cash provided by (used in) operating activities........................................ 172,331 --------- Investing Activities Property improvements and replacements.................... (81,823) Net (increase)/decrease in restricted escrows............. 99,741 --------- Net cash provided by (used in) investing activities....... 17,918 --------- Financing Activities Distributions to partners Payments on mortgage...................................... (64,130) --------- Net cash provided by (used in) financing activities........................................ (64,130) --------- Net increase (decrease) in cash and cash equivalents....................................... 126,119 Cash and cash equivalents at beginning of year.............. 500,585 --------- Cash and cash equivalents at end of period.................. $ 626,704 =========
F-4 4862 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Winthrop Texas Investors Limited Partnership as of June 30, 1998 and for the six months then ended have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. F-5 4863 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 1997 AND 1996 F-6 4864 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-8 Financial Statements Balance Sheets............................................ F-9 Statements of Income...................................... F-10 Statements of Partners' Equity (Deficit).................. F-11 Statements of Cash Flows.................................. F-12 Notes to Financial Statements............................. F-13
F-7 4865 INDEPENDENT AUDITORS' REPORT To the Partners Winthrop Texas Investors Limited Partnership We have audited the accompanying balance sheets of Winthrop Texas Investors Limited Partnership as of December 31, 1997 and 1996, and the related statements of income, partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Winthrop Texas Investors Limited Partnership as of December 31, 1997 and 1996, and the results of its operations, the changes in partners' equity (deficit) and cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Reznick Fedders & Silverman Bethesda, Maryland January 31, 1998 F-8 4866 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, ASSETS
1997 1996 ----------- ----------- Investment in Real Estate Land...................................................... $ 1,316,786 $ 1,316,786 Buildings and improvements................................ 9,560,304 9,420,649 ----------- ----------- 10,877,090 10,737,435 Less accumulated depreciation.......................... 2,021,938 1,607,389 ----------- ----------- 8,855,152 9,130,046 ----------- ----------- Other Assets Cash and cash equivalents................................. 500,585 174,553 Tenant security deposits -- funded........................ 65,565 64,033 Prepaid and other assets.................................. 26,012 50,243 Mortgage escrow deposits.................................. 471,324 372,577 Repair escrow............................................. 34,743 251,087 Deferred costs, net of accumulated amortization of $245,081 and $327,168.................................. 799,127 864,604 ----------- ----------- 1,897,356 1,777,097 ----------- ----------- $10,752,508 $10,907,143 =========== =========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) Liability Applicable to Investment in Real Estate Mortgages payable......................................... $ 7,997,772 $ 8,120,370 Other Liabilities Accounts payable.......................................... 60,932 53,185 Accrued expenses.......................................... 316,113 339,087 Accrued interest payable -- mortgage...................... 50,717 -- Tenant security deposits payable.......................... 55,670 57,579 ----------- ----------- 8,481,204 8,570,221 ----------- ----------- Partners' Equity (Deficit) Investor limited partners................................. 2,539,583 2,530,465 General partner........................................... (268,279) (193,543) ----------- ----------- 2,271,304 2,336,922 ----------- ----------- $10,752,508 $10,907,143 =========== ===========
See notes to financial statements F-9 4867 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP STATEMENTS OF INCOME YEAR ENDED DECEMBER 31,
1997 1996 ---------- ---------- Income Rental.................................................... $2,598,718 $2,357,093 Interest.................................................. 23,888 20,090 Other..................................................... 122,774 83,255 ---------- ---------- Total income...................................... 2,745,380 2,460,438 ---------- ---------- Operating expenses Leasing................................................... 32,265 36,670 General and administrative................................ 249,683 197,108 Management fees........................................... 176,874 149,949 Utilities................................................. 175,873 196,767 Repairs and maintenance................................... 359,222 372,603 Insurance................................................. 67,725 96,390 Taxes..................................................... 352,881 316,007 ---------- ---------- Total operating expenses.......................... 1,414,523 1,365,494 ---------- ---------- Other expenses Interest.................................................. 612,957 627,264 Depreciation.............................................. 414,549 369,186 Amortization.............................................. 65,477 90,856 Partnership expenses...................................... 70,719 104,645 Other expenses............................................ 28,652 15,668 ---------- ---------- Total other expenses.............................. 1,192,354 1,207,619 ---------- ---------- Total expenses.................................... 2,606,877 2,573,113 ---------- ---------- Net Income (Loss)................................. $ 138,503 $ (112,675) ========== ========== Net income (loss) allocated to general partner.............. $ 1,385 $ (1,122) ========== ========== Net income (loss) allocated to investor limited partners.... $ 137,118 $ (111,553) ========== ========== Net income (loss) per unit outstanding -- L.P............... $ 1,071 $ (872) ========== ==========
See notes to financial statements F-10 4868 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' EQUITY (DEFICIT) YEAR ENDED DECEMBER 31, 1997 AND 1996
INVESTOR GENERAL LIMITED PARTNER PARTNERS TOTAL --------- ----------- ----------- Partners' equity (deficit), December 31, 1995.......... $(184,373) $10,846,818 $10,662,445 Distributions to partners.............................. (8,048) (8,204,800) (8,212,848) Net loss............................................... (1,122) (111,553) (112,675) --------- ----------- ----------- Partners' equity (deficit), December 31, 1996.......... (193,543) 2,530,465 2,336,922 Distributions to partners.............................. (76,121) (128,000) (204,121) Net income............................................. 1,385 137,118 138,503 --------- ----------- ----------- Partners' equity (deficit), December 31, 1997.......... $(268,279) $ 2,539,583 $ 2,271,304 ========= =========== ===========
See notes to financial statements F-11 4869 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1997 1996 --------- ----------- Cash flows from operating activities Net income (loss)......................................... $ 138,503 $ (112,675) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation........................................... 414,549 369,186 Amortization........................................... 65,477 90,856 Decrease (increase) in prepaid and other assets........ 24,231 (15,687) Increase (decrease) in accounts payable................ 7,747 (4,033) (Decrease) increase in accrued expenses................ (22,974) 310,675 Decrease in net security deposits...................... (3,441) (3,887) Increase in mortgage escrow deposits................... (98,747) (317,981) Increase in accrued interest payable................... 50,717 -- --------- ----------- Net cash provided by operating activities......... 576,062 316,454 --------- ----------- Cash flows from investing activities Investment in real estate................................. (139,655) (283,274) Decrease (increase) in repair escrow...................... 216,344 (5,087) --------- ----------- Net cash provided by (used in) investing activities...................................... 76,689 (288,361) --------- ----------- Cash flows from financing activities Distributions to partners................................. (204,121) (8,212,848) Principal payments on mortgages payable................... (122,598) (104,603) Increase in deferred costs................................ -- (82,250) --------- ----------- Net cash used in financing activities............. (326,719) (8,399,701) --------- ----------- Net increase (decrease) in cash and cash equivalents..................................... 326,032 (8,371,608) Cash and cash equivalents, beginning........................ 174,553 8,546,161 --------- ----------- Cash and cash equivalents, end.............................. $ 500,585 $ 174,553 ========= =========== Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 562,240 $ 627,264 ========= ===========
See notes to financial statements F-12 4870 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Winthrop Texas Investors Limited Partnership (the "partnership"), a limited partnership, was formed September 20, 1993 under the laws of the State of Maryland to acquire, renovate, and operate two residential apartment complexes (the "properties") consisting of a total of 454 market-rate rental apartment units, located in Dallas and Fort Worth, Texas. The properties are situated on a total of approximately 12.4 acres of land known as the Enfield Apartments (in Dallas) and the Salem Park Apartments (in Fort Worth). Termination of the partnership will occur on December 31, 2041 or earlier upon the occurrence of certain events specified in the partnership agreement. The general partner is Two Winthrop Limited Partnership. The initial limited partner was WFC Realty Co., Inc., which withdrew from the partnership upon the first admission of investors. The partnership sold 128 limited partnership units at $100,000 per unit. Basis of Accounting The accompanying financial statements have been prepared on the accrual basis in accordance with generally accepted accounting principles. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Investment in Real Estate Rental property is carried at cost. The partnership provides for depreciation of buildings and improvements on the straight-line method over their estimated useful lives for financial and reporting purposes. For income tax purposes, accelerated methods and lives are used. Deferred Costs Deferred costs are capitalized and amortized using the straight-line method over the term of the related agreement. Rental Income Rental income is recognized as rents become due. Rental payments received in advance are deferred until earned. All leases between the operating partnership and tenants of the property are operating leases. Income Taxes No provision will be made for federal, state or local income taxes in the financial statements of the partnership. Partners will be required to report on their tax returns their allocable shares of income, gains, losses, deductions and credits of the partnership. F-13 4871 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents For purposes of the statement of cash flows, the partnership considers all highly liquid investments consisting of a money market fund to be cash equivalents. At December 31, 1997, the carrying amount of $9,015 approximates fair value because of the short maturity of this instrument. NOTE B -- MORTGAGES PAYABLE On December 28, 1995, the partnership obtained two mortgage loans by the same lender in the aggregate amount of $8,224,973 and are collateralized by deeds of trust on the rental properties. The notes bear interest at a rate of 7.61%. Principal and interest are payable by the partnership in monthly installments of $61,372. A balloon payment of approximately $7,222,801 and the accrued interest is payable in full on December 29, 2002. Under agreements with the mortgage lender, the partnership is required to make monthly escrow deposits for taxes and insurance. In addition, the partnership was required to make an initial deposit of $246,000 into a repair escrow which is being held by Heritage Title Company. The balance of the repair escrow at December 31, 1997 and 1996 is $34,743 and $251,087, respectively. The liability of the partnership under the mortgage notes are limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgages payable over each of the next five years are as follows:
DECEMBER 31, - -------------------------------------------------------- 1998.................................................... $ 132,392 1999.................................................... 142,826 2000.................................................... 154,082 2001.................................................... 166,226 2002.................................................... 7,402,246
NOTE C -- RELATED PARTY TRANSACTIONS The partnership has entered into various arrangements with affiliates of the general partner. Related party transactions include the following: The partnership was managed by Winthrop Management (through October 27, 1997), an affiliate of the general partner, which received an annual property management fee equal to 5% of gross operating revenues for the properties. Fees of $115,574 and $118,389 were charged to operations for 1997 and 1996, respectively. On October 28, 1997, the partnership terminated Winthrop Management as the managing agent, and appointed Insignia Residential Group of Texas, Inc. ("Insignia") the new management agent (see note F). The management agreement provides for a management fee of 5% of gross operating revenues of the properties. Fees of $22,122 were charged to operations for 1997. An annual administration and investor service fee starting at $25,000 and increasing by 6% per year was paid to an affiliate of the general partner thru October 27, 1997. For the years ended December 31, 1997 and 1996, the amount of the fee paid by the partnership to the affiliate was $39,178 and $31,560, respectively. Included in other expenses is $6,264 of asset management fees and $6,336 of general partner reimbursements charged to operations in 1997. The amounts were payable to an affiliate of the general partner starting in November 1997. F-14 4872 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) During 1996, the partnership paid an affiliate of the general partner a financing fee in the amount of $82,250 in connection with obtaining the mortgage loans. NOTE D -- ALLOCATION OF INCOME, LOSSES AND CASH FLOW In accordance with the partnership agreement, losses and cash flow shall be allocated 99% to the investor limited partners and 1% to Two Winthrop, the general partner; income shall be allocated to the partners in proportion to the cash available for distribution to the partners. If there is no such available cash for distribution, income will be allocated 95% to the investor limited partners and 5% to the general partner. NOTE E -- CONCENTRATION OF CREDIT RISK The partnership maintains its cash balances in two banks. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000 by each bank. As of December 31, 1997, the uninsured portion of the cash balances held at both banks was $217,953. NOTE F -- OTHER INFORMATION On October 28, 1997, Insignia Financial Group acquired 100% of the class B stock of First Winthrop Corporation, an affiliate of the general partner. F-15 4873 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 [WINTHROP] F-16 4874 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report................................ F-18 Financial Statements Balance Sheets............................................ F-19 Statements of Income...................................... F-20 Statements of Partners' Equity (Deficit).................. F-21 Statements of Cash Flows.................................. F-22 Notes to Financial Statements............................. F-23
F-17 4875 INDEPENDENT AUDITORS' REPORT To the Partners Winthrop Texas Investors Limited Partnership We have audited the accompanying balance sheets of Winthrop Texas Investors Limited Partnership as of December 31, 1995 and 1994, and the related statements of income, partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Winthrop Texas Investors Limited Partnership as of December 31, 1995 and 1994, and the results of its operations, the changes in partners' equity (deficit) and cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Reznick Fedders & Silverman Bethesda, Maryland February 9, 1996 F-18 4876 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, ASSETS
1995 1994 ----------- ----------- Investment in rental property Land...................................................... $ 1,316,786 $ 1,316,786 Buildings and improvements................................ 9,137,375 8,997,716 ----------- ----------- 10,454,161 10,314,502 Less accumulated depreciation............................. 1,238,203 924,646 ----------- ----------- 9,215,958 9,389,856 ----------- ----------- Other Assets Cash and cash equivalents................................. 8,546,161 1,007,344 Prepaid and other assets.................................. 108,321 84,643 Mortgage escrow deposits.................................. 300,596 -- Deferred costs, net of accumulated amortization of $236,312 and $182,354............................................... 854,427 751,131 ----------- ----------- 9,809,505 1,843,118 ----------- ----------- $19,025,463 $11,232,974 =========== =========== LIABILITIES AND PARTNERS' EQUITY Liabilities applicable to investment in Real Estate Mortgage payable.......................................... $ 8,224,973 $ -- Other Liabilities Accounts payable.......................................... 57,218 20,496 Accrued interest payable.................................. -- 4,747 Accrued expenses.......................................... 28,412 256,534 Tenant security deposits.................................. 52,415 62,987 ----------- ----------- 8,363,018 344,764 ----------- ----------- Partners' Equity Investor limited partners................................. 10,846,818 11,067,631 General partner........................................... (184,373) (179,421) ----------- ----------- 10,662,445 10,888,210 ----------- ----------- $19,025,463 $11,232,974 =========== ===========
See notes to financial statements F-19 4877 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP STATEMENTS OF INCOME YEAR ENDED DECEMBER 31,
1995 1994 ---------- ---------- Income Rental.................................................... $2,310,104 $2,275,598 Interest.................................................. 57,962 37,033 Other..................................................... 71,198 49,641 ---------- ---------- 2,439,264 2,362,272 ---------- ---------- Operating Expenses Leasing................................................... 34,342 61,544 General and administrative................................ 186,354 158,451 Management fees........................................... 146,941 151,063 Utilities................................................. 187,402 177,019 Repairs and maintenance................................... 341,805 334,766 Insurance................................................. 108,676 87,000 Taxes..................................................... 301,171 270,260 ---------- ---------- Total operating expenses.......................... 1,306,691 1,240,103 Other expenses Depreciation.............................................. 313,557 300,459 Amortization.............................................. 53,958 53,958 Legal fees -- partnership................................. 251,070 -- Other expenses............................................ 25,920 19,564 ---------- ---------- Total expenses.................................... 1,951,196 1,614,084 ---------- ---------- Net Income............................................. $ 488,068 $ 748,188 ========== ========== Net income allocated to general partner..................... $ 4,881 $ 14,216 ========== ========== Net income allocated to investor limited partners........... $ 483,187 $ 733,972 ========== ========== Net income per unit outstanding -- L.P...................... $ 3,775 $ 5,734 ========== ==========
See notes to financial statements F-20 4878 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 1995 AND 1994
INVESTOR GENERAL LIMITED PARTNER PARTNERS TOTAL --------- ----------- ----------- Partners' equity (deficit) December 31, 1993........... $(174,763) $11,312,859 $11,138,096 Distributions.......................................... (18,874) (979,200) (998,074) Net income............................................. 14,216 733,972 748,188 --------- ----------- ----------- Partners' equity (deficit) December 31, 1994........... (179,421) 11,067,631 10,888,210 Distributions.......................................... (9,833) (704,000) (713,833) Net income............................................. 4,881 483,187 488,068 --------- ----------- ----------- Partners' equity (deficit) December 31, 1995........... $(184,373) $10,846,818 $10,662,445 ========= =========== ===========
See notes to financial statements F-21 4879 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
1995 1994 ---------- ---------- Cash flows from operating activities Net income................................................ $ 488,068 $ 748,188 Adjustments to reconcile net income to net cash provided by operating activities Depreciation........................................... 313,557 300,459 Amortization........................................... 53,958 53,958 Increase in prepaid and other assets................... (23,678) (3,242) Increase in accounts payable........................... 36,722 1,512 Decrease in accrued interest........................... (4,747) -- Decrease in accrued expenses and other liabilities..... (228,122) (24,260) (Decrease) increase in security deposits............... (10,572) 3,967 Increase in mortgage escrow deposits................... (300,596) -- Increase in deferred costs............................. (157,254) -- ---------- ---------- Net cash provided by operating activities......... 167,336 1,080,582 ---------- ---------- Cash flows from investing activities Investment in rental property............................. (139,659) (117,021) ---------- ---------- Net cash used in investing activities............. (139,659) (117,021) ---------- ---------- Cash flows from financing activities Distributions............................................. (713,833) (998,074) Proceeds from mortgage loans.............................. 8,224,973 -- ---------- ---------- Net cash provided by (used in) financing activities...................................... 7,511,140 (998,074) ---------- ---------- Net increase (decrease) in cash and cash equivalents..................................... 7,538,817 (34,513) Cash and cash equivalents, beginning........................ 1,007,344 1,041,857 ---------- ---------- Cash and cash equivalents, end.............................. $8,546,161 $1,007,344 ========== ========== Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $ 4,747 $ -- ========== ==========
See notes to financial statements F-22 4880 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Winthrop Texas Investors Limited Partnership (the "partnership"), a limited partnership, was formed September 20, 1993 under the laws of the State of Maryland to acquire, renovate, and operate two residential apartment complexes (the "properties") consisting of a total of 454 market-rate rental apartment units, located in Dallas and Fort Worth, Texas. The properties are situated on a total of approximately 12.4 acres of land known as the Enfield Apartments (in Dallas) and the Salem Park Apartments (in Fort Worth). Termination of the partnership will occur on December 31, 2041 or earlier upon the occurrence of certain events specified in the partnership agreement. The general partner is Two Winthrop Limited Partnership. The initial limited partner was WFC Realty Co., Inc., which withdrew from the partnership upon the first admission of investors. The partnership sold 128 limited partnership units at $100,000 per unit. Basis of Accounting The accompanying financial statements have been prepared on the accrual basis in accordance with generally accepted accounting principles. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Investment in Rental Property Rental property is carried at cost. The partnership provides for depreciation of buildings and improvements on the straight-line method over their estimated useful lives for financial and reporting purposes. For income tax purposes, accelerated methods and lives are used. Deferred Costs Deferred costs are capitalized and amortized using the straight-line method over the term of the related agreement as discussed in Note D. Rental Income Rental income is recognized as rents become due. Rental payments received in advance are deferred until earned. All leases between the operating partnership and tenants of the property are operating leases. Income Taxes No provision will be made for federal, state or local income taxes in the financial statements of the partnership. Partners will be required to report on their tax returns their allocable shares of income, gains, losses, deductions and credits of the partnership. F-23 4881 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash Equivalents For purposes of the statement of cash flows, the partnership considers all highly liquid investments consisting of a money market fund to be cash equivalents. At December 31, 1995, the carrying amount of $867,120 approximates fair value because of the short maturity of this instrument. NOTE B -- MORTGAGES PAYABLE On December 28, 1995, the partnership obtained two mortgage loans by the same lender in the aggregate amount of $8,224,973 and are collateralized by deeds of trust on the rental properties. The notes bear interest at a rate of 7.46%. Principal and interest are payable by the partnership in monthly installments of $60,568. A balloon payment of approximately $7,321,816 and the accrued interest is payable in full on December 29, 2002. Under agreements with the mortgage lender, the partnership is required to make monthly escrow deposits for taxes and insurance. The liability of the partnership under the mortgage notes are limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. The carrying amount of the partnership's long-term debt approximates fair value. Aggregate annual maturities of the mortgages payable over each of the next five years are as follows:
DECEMBER 31, - ------------ 1996................................................... $ 88,123 1997................................................... 111,435 1998................................................... 120,217 1999................................................... 129,692 2000................................................... 139,913
NOTE C -- RELATED PARTY TRANSACTIONS The partnership has entered into various arrangements with affiliates of the general partner. Related party transactions include the following: The partnership pays an affiliate of the general partner an annual property management fee equal to 5% of gross operating revenues for the properties. Fees of $117,167 and $114,473 were charged to operations for 1995 and 1994, respectively. An annual administration and investor service fee starting at $25,000 and increasing by 6% per year will be paid to an affiliate of the general partner. For the years ended December 31, 1995 and 1994, the amount of the fee paid by the partnership to an affiliate was $29,774 and $28,090, respectively. The partnership paid an affiliate $8,500 as a construction management fee for the supervision of an extensive renovation program during 1994. F-24 4882 WINTHROP TEXAS INVESTORS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- DEFERRED COSTS The following is a summary of the deferred costs at December 31, 1995 and 1994.
PERIOD 1995 1994 ------ ---------- -------- Organizational costs............................... 5 years $ 126,894 $126,894 Surety fee......................................... 1 year 20,670 20,670 Acquisition fee.................................... 27.5 years 785,921 785,921 Financing fees..................................... 7 years 157,254 -- ---------- -------- 1,090,739 933,485 Less accumulated amortization.................... 236,312 182,354 ---------- -------- $ 854,427 $751,131 ========== ========
NOTE E -- ALLOCATION OF INCOME, LOSSES AND CASH FLOW In accordance with the partnership agreement, losses and cash flow shall be allocated 99% to the investor limited partners and 1% to Two Winthrop, the general partner; income shall be allocated to the partners in proportion to the cash available for distribution to the partners. If there is no such available cash for distribution, income will be allocated 95% to the investor limited partners and 5% to the general partner. NOTE F -- CONCENTRATION OF CREDIT RISK The partnership maintains its cash balances in two banks. The balances are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 by each bank. As of December 31, 1995, the uninsured portion of the cash balances held in one of the banks was $7,571,259. NOTE G -- SUBSEQUENT EVENTS On January 3, 1996, the partnership distributed $8,212,848 to the investor limited partners as a return of capital on their investment. On January 31, 1996, Londonberry Acquisition III Limited Partnership, a newly formed limited partnership, offered to purchase all outstanding units of limited partnership interests in Winthrop Texas Investors Limited Partnership, for consideration of $17,900 per unit. The purchaser is an affiliate of Two Winthrop Limited Partnership, the general partner of the partnership and Apollo Real Estate Advisors, L.P. This offer and withdrawal rights will expire on February 29, 1996, unless extended. F-25 4883 LOGO 4884 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 4885 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 4886 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 September , 1998 A-3 4887 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF WOODMERE 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 WE WILL ONLY ACCEPT A MAXIMUM OF % OF THE ANY 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 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S- OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 4888 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 Woodmere Associates, 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70 YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71 Property Management.......................... S-71
i 4889
PAGE ---- Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership............. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76 Distributions and Transfers of Units......... S-76
PAGE ---- Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-77 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC........ A-1
ii 4890 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 Woodmere Associates, 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 4891 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 4892 - 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 $0.00 per unit for the six months ended June 30, 1998 as a result of capital improvements to your partnership's property funded from cash flow. 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). 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 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. 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 S-3 4893 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 4894 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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 4895 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 4896 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. 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. 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 5 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. 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 S-7 4897 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 4898 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 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 S-9 4899 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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. S-10 4900 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, 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. 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 S-11 4901 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 67% of the outstanding units of the units of your partnership. In the absence of such consent, your only 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 S-12 4902 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 Preferred OP Units has prior distribution rights and the Tax-Deferral % Preferred OP Units rank equal to six other outstanding classes of Preferred OP 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. 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." S-13 4903 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 4904 - 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 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 4905 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 4906 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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-1 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 S-17 4907 of limited partner interests it may issue while the AIMCO Operating Partnership is not subject to such limitations. 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 both the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual fee of 1% of the gross collected income from your partnership's property of your partnership and may receive reimbursement for expenses generated in its capacity as general partner. The property manager received management fees of $50,000 in 1996, $52,000 in 1997 and $26,548 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 Your Partnership and its Property. Woodmere Associates, L.P. is a Delaware limited partnership which was formed on May 28, 1985 for the purpose of owning and operating a single apartment property located in Cincinnati, Ohio, known as "Woodmere Apartments." In 1985, it completed a private placement of units that raised net proceeds of approximately $1,887,000. Woodmere Apartments consists of 150 apartment units. Your partnership has no employees. Property Management. Since December 1991, your partnership's property has been managed by an entity which is now our affiliate. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and S-18 4908 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2012, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,903,759, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $103,182, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 4909 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, 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 4910
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 4911 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- 3,035 (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... 3,034 (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 4912
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 4913 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 4914 SUMMARY FINANCIAL INFORMATION OF WOODMERE ASSOCIATES, L.P. The summary financial information of Woodmere Associates, L.P. for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Woodmere 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 of Your Partnership" included herein. See "Index to Financial Statements." WOODMERE ASSOCIATES, L.P.
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------ 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ---------- Operating Data: Total Revenues.......... $ 522,568 $ 501,324 $ 1,057,000 $ 1,013,000 $ 995,026 $ 975,517 $ 936,168 Net Income/(Loss)............. 45,550 42,498 73,000 (1,000) (80,695) (86,629) (109,861) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation.... $ 1,488,180 $ 1,484,588 $ 1,490,000 $ 1,503,000 $ 1,503,854 $ 1,621,109 $1,812,408 Total Assets............ 1,932,282 1,913,850 1,954,000 1,956,000 2,070,485 2,256,014 2,449,896 Mortgage Notes Payable, including Accrued Interest.................... 2,886,078 2,954,151 2,923,000 2,988,000 3,046,674 3,100,988 3,162,313 Partners' Deficit............. $(1,059,450) $(1,135,502) $(1,105,000) $(1,178,000) $(1,126,662) $(1,006,161) $ (868,267)
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 YOUR 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 4915 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. 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 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 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, 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 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. S-26 4916 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 Code. 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 therefore 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 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. 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 S-27 4917 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 are $0.00 as a result of capital improvements to your partnership's property funded from cash flow. 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 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. 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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 S-28 4918 AIMCO's access to the public markets may prove challenging in light of the volatility in both the equity and capital markets for REITs. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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). S-29 4919 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least 67% of the outstanding units of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 OP Units rank equal to five other outstanding classes of Partnership Preferred Units. S-30 4920 - 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 4921 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 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. S-32 4922 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 4923 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. 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. S-34 4924 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." 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. 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. S-35 4925 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, (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 9:00 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 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, Denver, Colorado time. S-36 4926 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 4927 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. 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, which change, 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 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 S-38 4928 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 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 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 S-39 4929 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 4930 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. 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. 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-41 4931 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 distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred S-42 4932 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 payment. 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 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 S-43 4933 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-44 4934 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 in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of S-45 4935 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-46 4936 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-47 4937 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-48 4938 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-49 4939 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 4940 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-51 4941 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 4942 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 4943 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 4944 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 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, a third party expert, that the cash 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 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. Based on anticipated annualized distributions of $ with respect to the Preferred OP Units, current annualized distributions of $2.25 with respect to the Common OP Units and the 1998 distributions of $0.00 with respect to your units due to capital improvements on your partnership's property funded from cash flow, distributions with respect to the Preferred OP Units and Common OP Units being offered are expected to be , immediately following the 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 S-55 4945 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................................ Not available Estimated Liquidation Proceeds............................ $
S-56 4946 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. 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-1 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-57 4947 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection 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. S-58 4948 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 September 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 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 property was 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, S-59 4949 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 4950 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 for the purpose of owning and Delaware limited partnership. The AIMCO Operating managing Woodmere Apartments. 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 (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 2012. 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, develop, The purpose of the AIMCO Operating Partnership is to operate, lease, manage and hold for investment and conduct any business that may be lawfully conducted by production of income with your partnership's property. a limited partnership organized pursuant to the Subject to restrictions contained in your partnership's Delaware Revised Uniform Limited Partnership Act (as agreement of limited partnership, your partnership may amended from time to time, or any successor to such perform all act necessary, advisable or convenient to statute) (the "Delaware Limited Partnership Act"), the business of your partnership including borrowing provided that such business is to be conducted in a 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-61 4951 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 51 units for cash and time to the limited partners and to other persons, and notes 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, except that the admission No action or consent by the OP Unitholders is required of the limited partners other than those who purchase in connection with the admission of any additional OP the 51 units and substituted limited partners must be Unitholder. See "Description of OP Units -- Management effected by an amendment to your partnership's by the AIMCO GP" in the accompanying Prospectus. agreement of limited partnership executed and Subject to Delaware law, any additional partnership acknowledge by the general partner and all the limited interests may be issued in one or more classes, or one partners. No property other than cash may be or more series of any of such classes, with such contributed by any limited partner. 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 contract with the funds or other assets to its subsidiaries or other general partner or its affiliates for various goods and persons in which it has an equity investment, and such services as specified in your partnership's agreement persons may borrow funds from the AIMCO Operating of limited partnership, provided the terms and condi- Partnership, on terms and conditions established in the tions of such dealings are as favorable as could be sole and absolute discretion of the general partner. To reasonably obtained from third parties offering similar the extent consistent with the business purpose of the goods and services of similar quality and reliability. AIMCO Operating Partnership and the permitted In addition, the partners are authorized to lend money activities of the general partner, the AIMCO Operating to your partnership on commercially reasonably terms Partnership may transfer assets to joint ventures, without notification to any of the other partners and limited liability companies, partnerships, all or a portion of your partnership's property may be corporations, business trusts or other business conveyed as security for any indebtedness; provided entities in which it is or thereby becomes a that such borrowing from and granting of security to participant upon such terms and subject to such limited partners may be undertaken only the extent conditions consistent with the AIMCO Operating Part- allowed under applicable law. All advances by any nership Agreement and applicable law as the general partner will be considered a loan and the time and partner, in its sole and absolute discretion, believes amount of the repayment of such loans will be in the to be advisable. Except as expressly permitted by the sole discretion of the general partners; provided that AIMCO Operating Partnership Agreement, neither the interest on such loans shall accrue at the greater of general partner nor any of its affiliates may sell, 2 1/2% over the prime interest rate charged by the transfer or convey any property to the AIMCO Operating Third National Bank in Nashville, adjusted monthly or Partnership, directly or indirectly, except pursuant to the general partner's actual interest cost in borrowing transactions that are determined by the general partner such amounts. The principal and interest with respect in good faith to be fair and reasonable. to such loans will be fully paid prior to the distributions of funds to the partners unless such loans contains a specific provision to the contrary. Any partner who loans money to your partnership will be considered an unrelated creditor with respect to such loan to the extent allowed by applicable law.
Borrowing Policies The general partner of your partnership is authorized The AIMCO Operating Partnership Agreement contains no to obtain a loan of up to $1,650,000 from an restrictions on borrowings, and the general partner has institutional lender and a loan in the amount of up to full power and authority to borrow money on behalf of $1,050,000 from an affiliate of the general partner and the AIMCO Operating Partnership. The AIMCO Operating to execute, acknowledge and deliver such documents and Partnership has credit agreements that restrict, among instruments, including promissory notes, collection other things, its ability to incur indebtedness. See agreements, deeds to secure debts, deeds of trust, "Risk Factors -- Risks of Significant Indebtedness" in mortgages, assignments and other documents and security the accompanying Prospectus. instruments as may be necessary or desirable in connection with obtaining such loan and also borrow money in the ordinary course of business and as security therefor to mortgage all or any part of the real property of your partnership.
S-62 4952 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 containing the names and addresses of all limited such OP Unitholder's own expense, to obtain a current partners at all reasonable times at the principal list of the name and last known business, residence or office of your partnership. mailing address of the general partner and each other OP Unitholder.
Management Control The managing general partner of your partnership is All management powers over the business and affairs of primarily responsible for the day-to-day operations of the AIMCO Operating Partnership are vested in AIMCO-GP, your partnership. The general partners represent your Inc., which is the general partner. No OP Unitholder partnership in all transactions with third parties, has any right to participate in or exercise control or unless they designate in writing another person as management power over the business and affairs of the representative of your partnership. No limited partner AIMCO Operating Partnership. The OP Unitholders have has any right or power to take part in any way in the the right to vote on certain matters described under control of your partnership business except as may be "Comparison of Ownership of Your Units and AIMCO OP expressly provided in your partnership's agreement of Units -- Voting Rights" below. The general partner may limited partnership or by applicable statutes. 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 will not incur any liability to your partnership or any partner is not liable to the AIMCO Operating limited partner for any mistakes or errors in judgment Partnership for losses sustained, liabilities incurred or for any acts or omission believed by the general or benefits not derived as a result of errors in partner in good faith to be within the scope of judgment or mistakes of fact or law of any act or authority conferred upon it by your partnership omission if the general partner acted in good faith. agreement. In addition, your partnership will, to the The AIMCO Operating Partnership Agreement provides for extent permitted by law, indemnify and save harmless indemnification of AIMCO, or any director or officer of the general partner against and from any personal loss, AIMCO (in its capacity as the previous general partner liability (including attorneys' fees) or damage of the AIMCO Operating Partnership), the general incurred by it as the result of any act or omission in partner, any officer or director of general partner or its capacity as general partner unless such loss, the AIMCO Operating Partnership and such other persons liability or damage results from gross negligence or as the general partner may designate from and against willful misconduct by the general partner. 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 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
S-63 4953 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 following notice and a failure to cure the affairs of the AIMCO Operating Partnership. The general injury to your partnership within a reasonable time for partner may not be removed as general partner of the cause upon the vote of the limited partners holding 67% AIMCO Operating Partnership by the OP Unitholders with of the then outstanding units. A general partner may or without cause. Under the AIMCO Operating Partnership withdraw voluntarily from your partnership with the Agreement, the general partner may, in its sole consent of holders of 67% of the then outstanding discretion, prevent a transferee of an OP Unit from units. A substitute general partner may be elected upon becoming a substituted limited partner pursuant to the the affirmative vote of limited partners owning 51% of AIMCO Operating Partnership Agreement. The general the units. A limited partner may not transfer his partner may exercise this right of approval to deter, interests without the consent of the general partner delay or hamper attempts by persons to acquire a which may be withheld at the sole discretion of the controlling interest in the AIMCO Operating Partner- 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 limited partnership may With the exception of certain circumstances set forth be amended by the limited partners owning more than 67% in the AIMCO Operating Partnership Agreement, whereby of the units. Any amendment which alters a limited the general partner may, without the consent of the OP partner's interest in the capital profits, Unitholders, amend the AIMCO Operating Partnership Distributable Cash of your partnership must be approved Agreement, amendments to the AIMCO Operating by the affected partner and the general partner except Partnership Agreement require the consent of the in limited circumstances described in your holders of a majority of the outstanding Common OP partnership's agreement of limited partnership. Such Units, excluding AIMCO and certain other limited proposed amendments may be presented to the limited exclusions (a "Majority in Interest"). Amendments to partners upon the motion of the general partners or the AIMCO Operating Partnership Agreement may be receipt of a written request executed by limited proposed by the general partner or by holders of a partners owning at least 10% of the units then Majority in Interest. Following such proposal, the outstanding. For purposes of obtaining the consent of general partner will submit any proposed amendment to the limited partners, the general partner may require a the OP Unitholders. The general partner will seek the response within a specified time, not less than thirty written consent of the OP Unitholders on the proposed days from the submission of the proposal to the limited amendment or will call a meeting to vote thereon. See partners. Failure to respond in such time will "Description of OP Units -- Amendment of the AIMCO constitute a vote which is consistent with the general Operating Partnership Agreement" in the accompanying partner's recommendation with respect to such proposal. Prospectus.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its partnership interest and reimbursement for all fees its services as general partner of the AIMCO Operating and expenses as set forth in your partnership's Partnership. However, the general partner is entitled agreement of limited partnership, the general partner to payments, allocations and distributions in its receives an annual fee of 1% of the gross collected capacity as general partner of the AIMCO Operating income from your partnership's property. Moreover, the Partnership. In addition, the AIMCO Operating Part- general partner or certain affiliates may be entitled nership is responsible for all expenses incurred to compensation for additional services rendered. 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-64 4954 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross partnership, the liability of each of the limited negligence, no OP Unitholder has personal liability for partners for his share of the losses and debts of your the AIMCO Operating Partnership's debts and partnership shall be limited to the total capital obligations, and liability of the OP Unitholders for contribution of such limited partners (subject to the the AIMCO Operating Partnership's debts and obligations terms and conditions pursuant to which such capital is generally limited to the amount of their invest- contribution is to be paid) plus, to the extent that ment in the AIMCO Operating Partnership. However, the such limited partner rightfully has received the return limitations on the liability of limited partners for of such capital contribution, any sum, not in excess of the obligations of a limited partnership have not been such return, necessary to discharge liabilities of your clearly established in some states. If it were partnership to all creditors who extended credit before determined that the AIMCO Operating Partnership had such return; provided that the liability with respect been conducting business in any state without compli- to rightfully returned capital contribution is limited ance with the applicable limited partnership statute, to one year from the date of such return. 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 devote such of partnership agreement, Delaware law generally requires its time and that of its employees to your partnership a general partner of a Delaware limited partnership to business as may be reasonably necessary to carry on and adhere to fiduciary duty standards under which it owes conduct your partnership's business. The general its limited partners the highest duties of good faith, partner must use its best effort to do all other things fairness and loyalty and which generally prohibit such and perform such other duties as may be reasonably general partner from taking any action or engaging in necessary to the successful operation of your any transaction as to which it has a conflict of partnership and the general partner must act as a interest. The AIMCO Operating Partnership Agreement fiduciary with respect to the assets and business of expressly authorizes the general partner to enter into, your partnership. The general partner and its on behalf of the AIMCO Operating Partnership, a right affiliates may engage in whatever activities they of first opportunity arrangement and other conflict choose, whether the same be competitive with your avoidance agreements with various affiliates of the partnership or otherwise, including, without AIMCO Operating Partnership and the general partner, on limitation, the acquisition, ownership, financing, such terms as the general partner, in its sole and syndication, development, improvement, leasing, absolute discretion, believes are advisable. The AIMCO operation, management and brokerage of real property Operating Partnership Agreement expressly limits the (including real property that may be in the vicinity of liability of the general partner by providing that the an competitive with real property owned by your general partner, and its officers and directors will partnership), without having or incurring any not be liable or accountable in damages to the AIMCO obligation to disclose or to offer any interest in such Operating Partnership, the limited partners or activities to your partnership or the partners. 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 There are no material difference between the taxation The AIMCO Operating Partnership is not subject to of your partnership and the AIMCO Operating Federal income taxes. Instead, each holder of OP Units 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-65 4955 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 elect a general partner and approve rights as holders of the Common OP termination of the AIMCO Operating or disapprove the sale of all or a Units. See "Description of OP Partnership Agreement and certain material portion of your Units" in the accompanying transactions such as the partnership's property. The Prospectus. So long as any institution of bankruptcy approval of holder of 67% of the Preferred OP Units are outstand- proceedings, an assignment for the outstanding units is necessary to ing, in addition to any other vote benefit of creditors and certain remove a general partner, approve or consent of partners required by transfers by the general partner of the withdrawal of a general law or by the AIMCO Operating its interest in the AIMCO Operating partner, amend your partner- Partnership Agree- Part-
S-66 4956 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS ship's agreement of limited ment, the affirmative vote or nership or the admission of a partnership, subject to certain consent of holders of at least 50% successor general partner. limitations, and terminate your of the outstanding Preferred OP partnership. Units will be necessary for Under the AIMCO Operating Partner- effecting any amendment of any of ship Agreement, the general partner A general partner may cause the the provisions of the Partnership has the power to effect the dissolution of the partnership by Unit Designation of the Preferred acquisition, sale, transfer, retiring. Upon such event, within OP Units that materially and exchange or other disposition of ninety days of the retirement, the adversely affects the rights or any assets of the AIMCO Operating limited partners owning 67% of the preferences of the holders of the Partnership (including, but not units may vote to continue the Preferred OP Units. The creation or limited to, the exercise or grant business of your partnership. If no issuance of any class or series of of any conversion, option, general partner remains, all of the partnership units, including, privilege or subscription right or limited partner by unanimous without limitation, any partner- any other right available in consent may vote to reform your ship units that may have rights connection with any assets at any partnership and the limited partner senior or superior to the Preferred time held by the AIMCO Operating holding 67% of the units may elect OP Units, shall not be deemed to Partnership) or the merger, one or more successor general materially adversely affect the consolidation, reorganization or partner to continue the business of rights or preferences of the other combination of the AIMCO your partnership. In such an event holders of Preferred OP Units. With Operating Partnership with or into of such reformation, your respect to the exercise of the another entity, all without the partnership will dissolve and all above described voting rights, each consent of the OP Unitholders. of its assets and liability will be Preferred OP Units shall have one contributed to a new partnership (1) vote per Preferred OP Unit. The general partner may cause the and all parties of your partnership dissolution of the AIMCO Operating will become parties to the new Partnership by an "event of partnership. 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 are to be made quarterly on or provided, however, that at any time portion as the general partner may about January 15, April 15, July 15 and from time to time on or after in its sole and absolute discretion and October 15. 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. Your interest rate then applicable to partner and the holders of Common partnership has made distributions U.S. Treasury notes with a maturity OP Units on the record date in the past and is projected to of five years, and (ii) the annual established by the general partner make distributions in 1988. 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-67 4957 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 and such person Preferred OP Units and the OP Units. The AIMCO Operating Part- will become a substitute limited Preferred OP Units are not listed nership Agreement restricts the partner if: (1) a written on any securities exchange. The transferability of the OP Units. assignment has been duly executed Preferred OP Units are subject to Until the expiration of one year and acknowledged by the assignor restrictions on transfer as set from the date on which an OP and assignee and delivered to the forth in the AIMCO Operating Unitholder acquired OP Units, general partner, (2) the approval Partnership Agreement. subject to certain exceptions, such of the general partner which may be OP Unitholder may not transfer all withheld in the sole discretion and Pursuant to the AIMCO Operating or any portion of its OP Units to which will be withheld if the Partnership Agreement, until the any transferee without the consent general partner reasonably believes expiration of one year from the of the general partner, which that the transfer violates date on which a holder of Preferred consent may be withheld in its sole applicable securities law or result OP Units acquired Preferred OP and absolute discretion. After the in adverse tax consequences, Units, subject to certain expiration of one year, such OP including the termination of your exceptions, such holder of Unitholder has the right to partnership for tax purposes, (3) Preferred OP Units may not transfer transfer all or any portion of its the assignee has agreement to bound all or any portion of its Pre- OP Units to any person, subject to by all of the terms of your ferred OP Units to any transferee the satisfaction of certain partnership's agreement of limited without the consent of the general conditions specified in the AIMCO partnership and absolute discre- partner, which consent may be Operating Partnership Agreement, tion of the general partner has withheld in its sole and absolute including the general partner's been granted, (4) the assignee discretion. After the expiration of right of first refusal. See represents he is at least 18 years one year, such holders of Preferred "Description of OP Units -- of age, is a citizen and resident OP Units has the right to transfer Transfers and Withdrawals" in the of the U.S., has sufficient finan- all or any portion of its Preferred accompanying Prospectus. cial resources to maintain the OP Units to any person, subject to interest ac- the satisfaction of
S-68 4958 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS quired and that he is not acquiring certain conditions specified in the After the first anniversary of the interest with a view to resell AIMCO Operating Partnership Agree- becoming a holder of Common OP the interest and (5) the assignor ment, including the general Units, an OP Unitholder has the and assignee have complied with partner's right of first refusal. right, subject to the terms and such other conditions as set forth conditions of the AIMCO Operating in your partnership's agreement of After a one-year holding period, a Partnership Agreement, to require limited partnership. holder may redeem Preferred OP the AIMCO Operating Partnership to There are no redemption rights Units and receive in exchange redeem all or a portion of the associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 4959 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own the general partner of your partnership and the manager of your partnership's property. The general partner of your partnership receives an annual fee of 1% of the gross collected income from your partnership's property from your partnership and may receive reimbursement for expenses generated as general partner. The property manager received management fees of $50,000 in 1996, $52,000 in 1997 and $26,548 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's 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'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 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-70 4960 YOUR PARTNERSHIP GENERAL Woodmere Associates, L.P. is a Delaware limited partnership which raised net proceeds of approximately $1,887,000 in 1985 through a private offering. The promoter for the private offering of your partnership was Jacques-Miller. Insignia acquired your partnership in December 1991. AIMCO acquired Insignia in October, 1998. There are currently a total of 41 limited partners of your partnership and a total of 51 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on May 28, 1985 for the purpose of owning and operating a single apartment property located in Cincinnati, Ohio, known as "Woodmere Apartments." Your partnership's property consists of 150 apartment units. The total rentable square footage of your partnership's property is 147,126 square feet. Your partnership's property had an average occupancy rate of approximately 92.67% in 1996 and 92.67% in 1997. The average annual rent per apartment unit is approximately $6,536. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1991, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $50,000, $52,000 and $26,548, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2012 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 4961 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. [As of June 30, 1998, your partnership had a current mortgage note outstanding of $2,903,759, payable to Marine Midland, Bank of America and FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due in November 2002. Your partnership also has a second mortgage note outstanding of $103,182, on the same terms as the first mortgage note. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 4962 Below is selected financial information for Woodmere Associates, L.P. taken from the financial statements described above. See "Index to Financial Statements."
WOODMERE ASSOCIATES, L.P. ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 BALANCE SHEET DATA ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents.... $ 173,986 $ 177,931 $ 161,000 $ 175,000 $ 254,986 $ 291,578 $ 251,497 Land & Building.............. 4,675,204 4,553,513 4,618,000 4,513,000 4,409,584 4,319,112 4,253,420 Accumulated Depreciation..... (3,187,024) (3,068,925) (3,128,000) (3,010,000) (2,905,730) (2,698,003) (2,441,012) Other Assets................. 270,116 251,331 303,000 278,000 311,645 343,327 385,991 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $ 1,932,282 $ 1,913,850 $ 1,954,000 $ 1,956,000 $ 2,070,485 $ 2,256,014 $ 2,449,896 =========== =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... $ 2,886,078 $ 2,954,151 $ 2,923,000 $ 2,988,000 $ 3,046,674 $ 3,100,988 $ 3,162,313 Other Liabilities............ 105,654 95,201 136,000 146,000 150,473 161,187 155,850 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 2,991,732 3,049,352 3,059,000 3,134,000 3,197,147 3,262,175 3,318,163 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners deficit............. $(1,059,450) $(1,135,502) $(1,105,000) $(1,178,000) $(1,126,662) $(1,006,161) $ (868,267) =========== =========== =========== =========== =========== =========== ===========
WOODMERE ASSOCIATES, L.P. ------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 STATEMENT OF OPERATIONS DATA -------- -------- ---------- ---------- ---------- ---------- ---------- Rental Revenue......................... $484,925 $471,399 $ 992,000 $ 932,000 $ 931,883 $ 920,571 $ 890,560 Other Income........................... 37,643 29,925 65,000 81,000 63,143 54,946 45,608 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Revenue................. 522,568 501,324 1,057,000 1,013,000 995,026 975,517 936,168 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Expenses..................... 246,191 236,847 482,000 554,000 516,864 420,531 428,439 General & Administrative............... 16,738 9,816 36,000 10,000 9,865 33,291 52,344 Depreciation........................... 59,000 59,000 118,000 104,000 207,727 256,991 252,492 Interest Expense....................... 115,302 118,703 272,000 277,000 281,316 285,645 258,663 Property Taxes......................... 39,787 34,460 76,000 69,000 59,949 65,688 54,091 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Expenses................ 477,018 458,826 984,000 1,014,000 1,075,721 1,062,146 1,046,029 -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss)...................... $ 45,550 $ 42,498 $ 73,000 $ (1,000) $ (80,695) $ (86,629) $ (109,861) ======== ======== ========== ========== ========== ========== ==========
S-73 4963 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $45,550 for the six months ended June 30, 1998, compared to $42,498 for the six months ended June 30, 1997. The increase in net income was $3,052, or 7.18% . This increase was due to an increase in rental revenue offset by increases in operating, general and administrative expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $522,568 for the six months ended June 30, 1998, compared to $501,324 for the six months ended June 30, 1997, a increase of $21,244, or 4.24%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $246,191 for the six months ended June 30, 1998, compared to $236,847 for the six months ended June 30, 1997, an increase of $9,344 or 3.95%. Management expenses totaled $26,548 for the six months ended June 30, 1998, compared to $25,414 for the six months ended June 30, 1997, an increase of $1,134, or 4.46%. General and Administrative Expenses General and administrative expenses totaled $16,738 for the six months ended June 30, 1998 compared to $9,816 for the six months ended June 30, 1997, an increase of $6,922 or 70.52%. The increase is primarily due to an increase in training, travel and office supplies. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $115,302 for the six months ended June 30, 1998, compared to $118,703 for the six months ended June 30, 1997, a decrease of $3,401, or 2.87%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized net income of $73,000 for the year ended December 31, 1997, compared to a net loss of $1,000 for the year ended December 31, 1996. The increase in net income of $74,000, or 7,400% was primarily the result of an increase in rental revenue in conjunction with a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. Revenues Rental and other property revenues from the partnership's property totaled $1,057,000 for the year ended December 31, 1997, compared to $1,013,000 for the year ended December 31, 1996, an increase of $44,000, or 4.34%. S-74 4964 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $482,000 for the year ended December 31, 1997, compared to $554,000 for the year ended December 31, 1996, a decrease of $72,000 or 13%. This is due to the property incurred non-capitalized parking lot repair and exterior painting expenses in 1996. Management expenses totaled $52,000 for the year ended December 31, 1997, compared to $50,000 for the year ended December 31, 1996, an increase of $2,000, or 4.00%. General and administrative expenses totaled $36,000 for the year ended December 31, 1997 compared to $10,000 for the year ended December 31, 1996, an increase of $26,000 or 260%. The increase is primarily due to expenses included in operating expense for 1996 were reclassed to general administrative expenses for 1997. These reclassed expenses relate to audit fees and general partner reimbursements. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $272,000 for the year ended December 31, 1997, compared to $277,000 for the year ended December 31, 1996, a decrease of $5,000, or 1.81%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $1,000 for the year ended December 31, 1996, compared to a net loss of $80,695 for the year ended December 31, 1995. The decrease in the net loss of $79,695, or 98.76% was primarily the result of a decrease in depreciation expense of $80,000. Revenues Rental and other property revenues from the partnership's property totaled $1,013,000 for the year ended December 31, 1996, compared to $995,026 for the year ended December 31, 1995, an increase of $17,974, or 1.81%. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $554,000 for the year ended December 31, 1996, compared to $516,864 for the year ended December 31, 1995, an increase of $37,136 or 7.18%. The majority of the increase is due an increase in advertising expenses of approximately $20,000 related to concessions and periodicals expense. These expenses did not exist during 1995. Management expenses totaled $50,000 for the year ended December 31, 1996, compared to $49,536 for the year ended December 31, 1995, a increase of $464, or 0.94%. General and Administrative Expenses General and administrative expenses totaled $10,000 for the year ended December 31, 1996 compared to $9,865 for the year ended December 31, 1995, an increase of $135 or 1.37%. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $277,000 for the year ended December 31, 1996, compared to $281,316 for the year ended December 31, 1995, a decrease of $4,316, or 1.53%. S-75 4965 Liquidity and Capital Resources As of June 30, 1998, your partnership had $173,986 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 will not incur any liability to your partnership or any limited partner for any mistakes or errors in judgment or for any acts or omission believed by the general partner in good faith to be within the scope of authority conferred upon it by your partnership agreement. 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 owned by AIMCO. See "Conflicts of Interest." Your partnership will, to the extent permitted by law, indemnify and save harmless the general partner against and from any personal loss, liability (including attorneys' fees) or damage incurred by it as the result of any act or omission in its capacity as general partner unless such loss, liability or damage results from gross negligence or willful misconduct by the general partner. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter. Your partnership did not pay distributions in 1997 and is not expected to pay distributions in 1998 due to capital improvements to your partnership's property funded from cash flow.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $1,000.00 1995........................................................ 776.47 1996........................................................ 990.00 1997........................................................ 0.00 1998 (through June 30)...................................... 0.00
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the there have been no units transferred in sale S-76 4966 transactions (excluding transactions believed to be between related parties, family members or the same beneficial owner), was as follows: BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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........................................................ $23,249 1995........................................................ 20,524 1996........................................................ 30,000 1997........................................................ 33,000 1998 (through June 30)......................................
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $49,536 1996........................................... 50,000 1997........................................... 52,000 1998 (through June 30)......................... 26,548
If the offer had been made in such prior periods, there would not have been any material difference in the compensation and distributions that would have been paid to the general partner of your partnership, or the company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
S-77 4967 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 audited financial statements of Woodmere Associates, L.P. at December 31, 1997, 1996 and 1995 and for each of the years then ended, appearing in this Prospectus Supplement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-78 4968 WOODMERE ASSOCIATES, L.P. INCOME TAX BASIS INDEX FINANCIAL STATEMENT
PAGE ---- Condensed Balance Sheet -- As of June 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations -- For the six months ended June 30, 1998 and 1997 (unaudited).................. F-3 Condensed Statements of Cash Flows -- For the six months ended June 30, 1998 and 1997 (unaudited).................. F-4 Independent Auditors' Report................................ F-5 Notes to Condensed Financial Statements..................... F-4 Balance Sheet -- As of December 31, 1997.................... F-6 Statements of Operations -- For the year ended December 31, 1997...................................................... F-7 Statement of Partners' Deficit -- For the year ended December 31, 1997......................................... F-8 Statement of Cash Flows -- For the year ended December 31, 1997...................................................... F-9 Notes to Financial Statements -- Income Tax Basis........... F-10 Independent Auditors' Report................................ F-14 Balance Sheet -- As of December 31, 1996.................... F-15 Statements of Operations -- For the year ended December 31, 1996...................................................... F-16 Statement of Partners' Deficit -- For the year ended December 31, 1996......................................... F-17 Statement of Cash Flows -- For the year ended December 31, 1996...................................................... F-18 Notes to Financial Statements............................... F-19 Independent Auditors' Report................................ F-22 Balance Sheet -- As of December 31, 1995.................... F-23 Statements of Operations -- For the year ended December 31, 1995...................................................... F-24 Statement of Partners' Deficit -- For the year ended December 31, 1995......................................... F-25 Statement of Cash Flows -- For the year ended December 31, 1995...................................................... F-26 Notes to Financial Statements............................... F-27
F-1 4969 WOODMERE ASSOCIATES, LP CONDENSED BALANCE SHEET JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 173,986 Receivables and Deposits.................................... 39,283 Restricted Escrows.......................................... 163,303 Other Assets................................................ 67,530 Investment Property: Land...................................................... 255,000 Building and related personal property.................... 4,420,204 ----------- 4,675,204 Less: Accumulated depreciation............................ (3,187,024) 1,488,180 ----------- ----------- Total Assets...................................... $ 1,932,282 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 46,674 Property Taxes Payable...................................... 39,787 Tenant Security Deposits.................................... 29,142 Notes Payable............................................... 2,876,129 Partners' Capital........................................... (1,059,450) ----------- Total Liabilities and Partners' Capital........... $ 1,932,282 ===========
F-2 4970 WOODMERE ASSOCIATES, LP CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------- 1998 1997 -------- -------- Revenues: Rental Income............................................. $484,925 $471,399 Other Income.............................................. 37,643 29,925 -------- -------- Total Revenues:................................... 522,568 501,324 Expenses: Operating Expenses........................................ 246,191 236,847 General and Administrative Expenses....................... 16,738 9,816 Depreciation Expense...................................... 59,000 59,000 Interest Expense.......................................... 115,302 118,703 Property Tax Expense...................................... 39,787 34,460 -------- -------- Total Expenses:................................... 477,018 458,826 -------- -------- Net Income........................................ $ 45,550 $ 42,498 ======== ========
F-3 4971 WOODMERE ASSOCIATES, LP CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30 ------------------- 1998 1997 -------- -------- Operating Activities: Net Income (loss)......................................... $ 45,550 $ 42,498 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization............................. 59,000 59,000 Changes in accounts:...................................... -- -- Receivables and deposits and other assets................. 36,187 28,051 Accounts Payable and accrued expenses..................... (20,397) (40,850) -------- -------- Net cash provided by (used in) operating activities....................................... 120,340 88,699 -------- -------- Investing Activities Property improvements and replacements.................... (57,180) (40,588) Net (increase)/decrease in restricted escrows............. (3,303) (1,382) -------- -------- Net cash provided by (used in) investing activities....... (60,483) (41,970) -------- -------- Financing Activities Distributions to partners................................. -- -- Payments on mortgage...................................... (46,871) (43,798) -------- -------- Net cash provided by (used in) financing activities....... (46,871) (43,798) -------- -------- Net increase (decrease) in cash and cash equivalents...................................... 12,986 2,931 Cash and cash equivalents at beginning of year............ 161,000 175,000 -------- -------- Cash and cash equivalents at end of period........ $173,986 $177,931 ======== ========
NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Woodmere Associates, LP as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-4 4972 REPORT OF INDEPENDENT AUDITORS Members of the Partnership Woodmere Associates, L.P. We have audited the accompanying balance sheet of Woodmere Associates, L.P., as of December 31, 1997, and the related statements of operations, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Woodmere Associates, L.P. at December 31, 1997, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP March 9, 1998 Greenville, South Carolina F-5 4973 WOODMERE ASSOCIATES, L.P. BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 161 Receivables and deposits.................................... 76 Restricted escrows.......................................... 160 Other assets................................................ 67 Investment property (Note B): Land...................................................... $ 255 Buildings and related personal property................... 4,363 ------- 4,618 Less accumulated depreciation............................. (3,128) 1,490 ------- ------- $ 1,954 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accrued taxes............................................. $ 76 Tenant security deposits.................................. 30 Other liabilities......................................... 30 Mortgage notes payable (Note B)........................... 2,923 Partners' deficit........................................... (1,105) ------- $ 1,954 =======
See accompanying notes. F-6 4974 WOODMERE ASSOCIATES, L.P. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Revenues: Rental income............................................. $ 992 Other income.............................................. 65 ------ 1,057 Expenses: Operating................................................. $482 General and administrative................................ 36 Depreciation.............................................. 118 Interest.................................................. 272 Property taxes............................................ 76 984 ---- ------ Net income.................................................. $ 73 ======
See accompanying notes. F-7 4975 WOODMERE ASSOCIATES, L.P. STATEMENT OF PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
LIMITED GENERAL PARTNERS PARTNERS TOTAL -------- -------- ------- Partners' deficit at December 31, 1996...................... $(1,150) $(28) $(1,178) Net income................................................ 72 1 73 ------- ---- ------- Partners' deficit at December 31, 1997...................... $(1,078) $(27) $(1,105) ======= ==== =======
See accompanying notes. F-8 4976 WOODMERE ASSOCIATES, L.P. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net income................................................ $ 73 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 118 Amortization of discounts and loan costs............... 36 Changes in assets and liabilities: Receivables and deposits............................. 4 Other assets......................................... (7) Accounts payable..................................... (25) Accrued taxes........................................ 7 Other liabilities.................................... 8 ----- Net cash provided by operating activities......... 214 ----- Cash flows from investing activities Property improvements and replacements.................... (105) Net deposits to restricted escrows........................ (5) ----- Net cash used in investing activities............. (110) ----- Cash flows from financing activities Payments on mortgage notes payable........................ (88) ----- Net increase in cash and cash equivalents......... 16 Cash and cash equivalents at December 31, 1996.............. 145 ----- Cash and cash equivalents at December 31, 1997.............. $ 161 ===== Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 236 =====
See accompanying notes. F-9 4977 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Woodmere Associates, L.P., is a Delaware limited partnership which began operations in 1985 with the purchase of an apartment complex in Cincinnati, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates. Investment Property The investment property is recorded at the Partnership's acquisition cost. Buildings and related personal property are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 25 years. Leases The Partnership generally leases apartment units for twelve-month terms or less. Income Taxes No provision has been made for Federal and state income taxes since such taxes are the personal responsibility of the partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Partnership Allocations Net earnings or loss and taxable income or loss are allocated 99% to the limited partners and 1% to the general partners. Distributions of available cash or proceeds from financing or sale of the property are allocated among the limited partners and the general partners in accordance with the limited partnership agreement. Cash and Cash Equivalents It is the Partnership's policy to classify all liquid short-term investments with a maturity of three months or less as cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits The Partnership requires security deposits from all apartment lessees for the duration of the lease and includes the deposits in "Receivables and deposits". Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit and the tenant is current on its rental payments. Restricted Escrows -- Reserve Account At the time of the refinancing of the mortgage notes payable in 1992, the Reserve Escrow was established with the refinancing proceeds. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit F-10 4978 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) net operating income (as defined in the mortgage note) from the refinanced property to the reserve account until the reserve account equals $1,000 per apartment unit or $150,000 in total. At December 31, 1997, the reserve account balance was approximately $160,000. Loan Costs In connection with the refinancing of certain mortgage notes payable in 1992, loan costs of approximately $123,000 were incurred which are being amortized on a straight-line basis over the life of the loans. Accumulated amortization as of December 31, 1997, is approximately $63,000. NOTE B -- MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows (dollar amounts in thousands):
MONTHLY PRINCIPAL PRINCIPAL PAYMENT STATED BALANCE BALANCE AT INCLUDING INTEREST MATURITY DUE AT DECEMBER 31, PROPERTY INTEREST RATE DATE MATURITY 1997 -------- --------- -------- -------- --------- ------------ Woodmere Apartments: 1st mortgage............................. $26 7.6% 11/15/02 $2,417 $2,951 2nd mortgage............................. 1 7.6% 11/15/02 103 103 --- ------ $27 3,054 Less unamortized discounts at 8.76%........ (131) ------ $2,923 ======
Mortgages are collateralized by the related property and improvements of the Partnership. The Partnership exercised interest rate buy-down options when the debt was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to approximately $239,000 and is being amortized as a loan discount on the interest method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. Scheduled principal payments of mortgage notes payable subsequent to December 31, 1997, are as follows (in thousands): 1998........................................................ $ 95 1999........................................................ 103 2000........................................................ 111 2001........................................................ 119 2002........................................................ 2,626 ------ $3,054 ======
NOTE C -- RELATED PARTY TRANSACTIONS AND BALANCES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1997 (in thousands): Property management fees.................................... $52 Reimbursements for services of affiliates................... 33
F-11 4979 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (In thousands)
BUILDINGS COST AND RELATED CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ---- ----------- ------------- Woodmere......................................... $3,054 $255 $3,886 $477 ====== ==== ====== ====
GROSS AMOUNT AT WHICH CARRIED (In thousands)
BUILDINGS AND RELATED DEPRECIABLE PERSONAL ACCUMULATED DATE LIFE -- DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED YEARS ----------- ------ ----------- ------ ------------ -------- ------------ Woodmere........................ $ 255 $4,363 $4,618 $3,128 9/85 5-25 ====== ====== ====== ====== ===== =====
Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): INVESTMENT PROPERTY Balance at beginning of year................................ $4,513 Property improvements....................................... 105 ------ Balance at end of year...................................... $4,618 ======
ACCUMULATED DEPRECIATION Balance at beginning of year................................ $3,010 Property improvements....................................... 118 ------ Balance at end of year...................................... $3,128 ======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $4,618,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $3,031,000. NOTE E -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-12 4980 REPORT OF INDEPENDENT AUDITORS Members of the Partnership Woodmere Associates, L.P. We have audited the accompanying balance sheet of Woodmere Associates, L.P., as of December 31, 1996, and the related statements of operations, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Woodmere Associates, L.P. as of December 31, 1996, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP February 25, 1997 Greenville, South Carolina F-13 4981 WOODMERE ASSOCIATES, L.P. BALANCE SHEET DECEMBER 31, 1996 (IN THOUSANDS) ASSETS Cash and cash equivalents: Unrestricted.............................................. $ 145 Restricted -- tenant security deposits.................... 30 Accounts receivable......................................... 7 Escrow for taxes............................................ 43 Restricted escrows.......................................... 155 Loan costs, net............................................. 73 Investment property (Note B): Land...................................................... $ 255 Buildings and related personal property................... 4,258 ------- 4,513 Less accumulated depreciation............................. (3,010) 1,503 ------- ------- $ 1,956 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 25 Accrued taxes............................................. 69 Tenant security deposits.................................. 30 Other liabilities......................................... 22 Mortgage notes payable (Note B)........................... 2,988 Partners' deficit........................................... (1,178) ------- $ 1,956 =======
See accompanying notes. F-14 4982 WOODMERE ASSOCIATES, L.P. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Revenues: Rental income............................................. $ 932 Other income.............................................. 81 ------ 1,013 Expenses: Operating................................................. $381 General and administrative................................ 10 Maintenance............................................... 173 Depreciation.............................................. 104 Interest.................................................. 277 Property taxes............................................ 69 1,014 ---- ------ Net loss.................................................... $ (1) ======
See accompanying notes. F-15 4983 WOODMERE ASSOCIATES, L.P. STATEMENT OF PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
LIMITED GENERAL PARTNERS PARTNERS TOTAL -------- -------- ------- Partners' deficit at December 31, 1995...................... $(1,099) $(27) $(1,126) Net loss.................................................. (1) -- (1) Distributions............................................. (50) (1) (51) ------- ---- ------- Partners' deficit at December 31, 1996...................... $(1,150) $(28) $(1,178) ======= ==== =======
See accompanying notes. F-16 4984 WOODMERE ASSOCIATES, L.P. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Cash flows from operating activities Net (loss)................................................ $ (1) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation........................................... 104 Amortization of discounts and loan costs............... 35 Changes in assets and liabilities: Restricted cash -- tenant security deposits.......... (1) Accounts receivable.................................. (5) Escrow for taxes..................................... 13 Accounts payable..................................... 20 Tenant security deposit liabilities.................. 2 Accrued taxes........................................ 8 Other liabilities.................................... (34) ----- Net cash provided by operating activities......... 141 ----- Cash flows from investing activities Property improvements and replacements.................... (103) Deposits to restricted escrows............................ (4) Receipts from restricted escrows.......................... 18 ----- Net cash used in investing activities............. (89) ----- Cash flows from financing activities Payments on mortgage notes payable........................ (82) Partners' distributions................................... (51) ----- Net cash used in financing activities............. (133) ----- Decrease in cash............................................ (81) Unrestricted cash at December 31, 1995...................... 226 ----- Unrestricted cash at December 31, 1996...................... $ 145 ===== Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 242 =====
See accompanying notes. F-17 4985 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Woodmere Associates, L.P., is a Delaware limited partnership which began operations in 1985 with the purchase of an apartment complex in Cincinnati, Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates. Investment Property The investment property is recorded at the Partnership's acquisition cost. In 1995 the Partnership adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The effect of adoption was not material. Buildings and related personal property are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 25 years. Leases The Partnership generally leases apartment units for twelve-month terms or less. Income Taxes No provision has been made for Federal and state income taxes since such taxes are the personal responsibility of the partners. Fair Value In 1995, the Partnership implemented Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practical to estimate that value. The carrying amount of the Partnership's cash and cash equivalents approximates fair value due to short-term maturities. The Partnership estimates the fair value of its fixed rate mortgages by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership (Note B). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Partnership Allocations Net earnings or loss and taxable income or loss are allocated 99% to the limited partners and 1% to the general partners. Distributions of available cash or proceeds from financing or sale of the property are allocated among the limited partners and the general partners in accordance with the limited partnership agreement. F-18 4986 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash and Cash Equivalents -- Unrestricted Cash It is the Partnership's policy to classify all liquid short-term investments with a maturity of three months or less as cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all apartment lessees for the duration of the lease and consider the deposits to be restricted cash. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Restricted Escrows -- Reserve Account At the time of the refinancing of the mortgage notes payable in 1992, the Reserve Escrow was established with the refinancing proceeds. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) from the refinanced property to the reserve account until the reserve account equals $1,000 per apartment unit or $150,000 in total. At December 31, 1996, the reserve account balance was $153,000. Loan Costs In connection with the refinancing of certain mortgage notes payable in 1992, loan costs of $123,000 were incurred which are being amortized on a straight-line basis over the life of the loans. Accumulated amortization as of December 31, 1996 is $50,000. NOTE B -- MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows (dollar amounts in thousands):
MONTHLY PRINCIPAL PRINCIPAL PAYMENT STATED BALANCE BALANCE AT INCLUDING INTEREST MATURITY DUE AT DECEMBER 31, PROPERTY INTEREST RATE DATE MATURITY 1996 -------- --------- -------- -------- --------- ------------ Woodmere Apartments: 1st mortgage............................. $26 7.6% 11/15/02 $2,417 $3,039 2nd mortgage............................. 1 7.6% 11/15/02 103 103 --- ------ $27 3,142 Less unamortized discounts at 8.76%........ (154) ------ $2,988 ======
Mortgages are collateralized by the related property and improvements of the Partnership. The Partnership exercised interest rate buy-down options when the debt was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $239,000 and is being amortized as a loan discount on the interest method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. The carrying value of the mortgage notes payable approximates its estimated fair value at December 31, 1996. F-19 4987 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Scheduled principal payments of mortgage notes payable subsequent to December 31 are as follows (in thousands): 1997........................................................ $ 88 1998........................................................ 95 1999........................................................ 103 2000........................................................ 111 2001........................................................ 119 Thereafter.................................................. 2,626 ------ $3,142 ======
NOTE C -- RELATED PARTY TRANSACTIONS AND BALANCES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1996 (in thousands): Property management fees.................................... $50 Reimbursements for services of affiliates................... 30
NOTE D -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-20 4988 REPORT OF INDEPENDENT AUDITORS Members of the Partnership Woodmere Associates, L.P. We have audited the accompanying balance sheet of Woodmere Associates, L.P., as of December 31, 1995, and the related statements of operations, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Woodmere Associates, L.P. as of December 31, 1995, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP March 6, 1996 Greenville, South Carolina F-21 4989 WOODMERE ASSOCIATES, L.P. BALANCE SHEET DECEMBER 31, 1995 ASSETS Cash and cash equivalents: Unrestricted.............................................. $ 226,424 Restricted -- tenant security deposits.................... 28,562 Accounts receivable......................................... 1,682 Escrow for taxes............................................ 55,521 Restricted escrows (Note 1)................................. 168,795 Loan costs, net (Note 1).................................... 85,647 Investment property, at cost (Notes 1 and 2): Land...................................................... $ 255,000 Buildings and related personal property................... 4,154,584 ----------- 4,409,584 Less accumulated depreciation............................. (2,905,730) 1,503,854 ----------- ----------- $ 2,070,485 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 5,591 Accrued taxes............................................. 61,205 Tenant security deposits.................................. 27,923 Other liabilities......................................... 55,754 Mortgage notes payable (Note 2)........................... 3,046,674 Partners' deficit........................................... (1,126,662) ----------- $ 2,070,485 ===========
See accompanying notes. F-22 4990 WOODMERE ASSOCIATES, L.P. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 Revenues: Rental income............................................. $ 931,883 Other income.............................................. 63,143 ---------- 995,026 Expenses: Operating................................................. $309,188 General and administrative................................ 9,865 Maintenance............................................... 158,140 Depreciation.............................................. 207,727 Property management fees (Note 3)......................... 49,536 Interest.................................................. 281,316 Property taxes............................................ 59,949 1,075,721 -------- ---------- Net loss.................................................... $ (80,695) ==========
See accompanying notes. F-23 4991 WOODMERE ASSOCIATES, L.P. STATEMENT OF PARTNERS' DEFICIT YEAR ENDED DECEMBER 31, 1995
LIMITED GENERAL PARTNERS PARTNERS TOTAL ----------- -------- ----------- Partners' deficit at December 31, 1994.................. $ (979,877) $(26,284) $(1,006,161) Net loss.............................................. (79,888) (807) (80,695) Distributions......................................... (39,406) (400) (39,806) ----------- -------- ----------- Partners' deficit at December 31, 1995.................. $(1,099,171) $(27,491) $(1,126,662) =========== ======== ===========
See accompanying notes. F-24 4992 WOODMERE ASSOCIATES, L.P. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1995 Cash flows from operating activities Net (loss)................................................ $ (80,695) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation........................................... 207,727 Amortization of discounts and loan costs............... 33,762 Changes in assets and liabilities: Restricted cash...................................... (151) Accounts receivable.................................. 785 Escrow for taxes..................................... 1,109 Accounts payable..................................... (10,242) Tenant security deposit liabilities.................. (88) Accrued taxes........................................ (3,687) Other liabilities.................................... 3,303 --------- Net cash provided by operating activities......... 151,823 Cash flows from investing activities Property improvements and replacements.................... (90,472) Deposits to restricted escrows............................ (5,797) Receipts from restricted escrows.......................... 23,202 --------- Net cash used in investing activities............. (73,067) Cash flows from financing activities Payments on mortgage notes payable........................ (75,693) Partners' distributions................................... (39,806) --------- Net cash used in financing activities............. (115,499) --------- Decrease in cash............................................ (36,743) Cash at December 31, 1994................................... 263,167 --------- Cash at December 31, 1995................................... $ 226,424 =========
See accompanying notes. F-25 4993 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Woodmere Associates, L.P., (an apartment complex) is a Delaware limited partnership which began operations in 1985 with the purchase in Cincinnati, Ohio. Investment Property The investment property is recorded at the Partnership's acquisition cost. In 1995 the Partnership adopted FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The effect of adoption was not material. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over estimated service lives, using the straight-line method. Income Taxes No provision has been made for Federal and state income taxes since such taxes are the personal responsibility of the partners. Fair Value In 1995, the Partnership implemented Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practical to estimate that value. The carrying amount of the Partnership's cash and cash equivalents approximates fair value due to short-term maturities. The Partnership estimates the fair value of its fixed rate mortgages by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership (Note 2). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Partnership Allocations Net earnings or loss and taxable income or loss are allocated 99% to the limited partners and 1% to the general partners. Distributions of available cash or proceeds from financing or sale of the property are allocated among the limited partners and the general partners in accordance with the limited partnership agreement. Cash and Cash Equivalents It is the Partnership's policy to classify all liquid short-term investments with a maturity of three months or less as cash equivalents. F-26 4994 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Restricted Escrows 1) Capital Improvement Reserves At the time of the refinancing of Woodmere Associates, L.P. mortgage note payable in 1992, $65,300 of the proceeds were designated for a "capital improvement escrow" for certain capital improvements. At December 31, 1995, approximately $49,000 of the reserves had been expended. The capital improvements are anticipated to be completed in calendar year 1996 and any excess funds will be returned for property operations. 2) Reserve Account In addition to the Capital Improvement Reserve, the Reserve Escrow was established with the refinancing proceeds for the refinanced property. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) from the refinanced property to the reserve account until the reserve account equals $1,000 per apartment unit or $150,000 in total. At December 31, 1995, the reserve account balance was $152,578. Loan Costs In connection with the refinancing of certain mortgage notes payable in 1992, loan costs of $123,468 were incurred which are being amortized on a straight-line basis over the life of the loans. 2. MORTGAGE NOTES PAYABLE The principal terms of mortgage notes payable are as follows:
MONTHLY PRINCIPAL PRINCIPAL PAYMENT STATED BALANCE BALANCE AT INCLUDING INTEREST MATURITY DUE AT DECEMBER 31, PROPERTY INTEREST RATE DATE MATURITY 1995 -------- --------- -------- -------- ---------- ------------ Woodmere Apartments: 1st mortgage.......................... $26,331 7.6% 11/15/02 $2,416,547 $3,120,090 2nd mortgage.......................... 653 7.6% 11/15/02 103,182 103,182 $26,984 3,223,272 Less unamortized discounts at 8.76%..... (176,598) ---------- $3,046,674 ==========
Mortgages are collateralized by the related property and improvements of the Partnership. Total interest paid during fiscal 1995 was $247,794. The Partnership exercised interest rate buy-down options when the debt was refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the interest rate reduction amounted to $239,388 and is being amortized as a loan discount on the interest method over the life of the loans. The discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. The carrying value of the mortgage notes payable approximates its estimated fair value at December 31, 1995. F-27 4995 WOODMERE ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Scheduled principal payments of mortgage notes payable subsequent to December 31 are as follows: 1996..................................................... $ 81,650 1997..................................................... 88,077 1998..................................................... 95,009 1999..................................................... 102,486 2000..................................................... 110,552 Thereafter............................................... 2,745,498 ---------- $3,223,272 ==========
3. RELATED PARTY TRANSACTIONS AND BALANCES Affiliates of Insignia Financial Group, Inc. ("Insignia") own the controlling ownership interest in the Partnership's Managing General Partner, with certain affiliates of Insignia providing property management and asset management services to the Partnership. The following payments were made to Insignia and its affiliates in 1995: Property management fees.................................... $49,536 Reimbursements for services of affiliates................... 20,524
4. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-28 4996 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 4997 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 4998 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 September , 1998 A-3 4999 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 6, 1998 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1998) AIMCO PROPERTIES, L.P. IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF YORKTOWN TOWERS ASSOCIATES 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 WILL EXPIRE AT 5:00 P.M., DENVER, COLORADO TIME, ON , 1998, UNLESS OUR OFFER CONSIDERATION WILL BE REDUCED WE EXTEND THE DEADLINE. FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF OUR OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 5 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, the offer consideration may not reflect the fair market value of your units. - Your general partner has substantial conflicts of interest with respect to the 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. - 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 5000 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 Yorktown Towers Associates.......................... 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-29 Expected Benefits of the Offer............... S-30 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-35 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-40 Fees and Expenses............................ S-41 Accounting Treatment......................... S-41
PAGE ---- DESCRIPTION OF PREFERRED OP UNITS.............. S-42 General...................................... S-42 Ranking...................................... S-42 Distributions................................ S-42 Allocation................................... S-43 Liquidation Preference....................... S-43 Redemption................................... S-44 Voting Rights................................ S-44 Restrictions on Transfer..................... S-44 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-45 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-47 CERTAIN FEDERAL INCOME TAX MATTERS............. S-50 Tax Consequences of Exchanging Units Solely for OP Units............................... S-50 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-50 Tax Consequences of Exchanging Units Solely for Cash................................... S-51 Adjusted Tax Basis........................... S-51 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-52 Passive Activity Losses...................... S-52 Foreign Offerees............................. S-53 VALUATION OF UNITS............................. S-53 FAIRNESS OF THE OFFER.......................... S-54 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-54 Fairness to Unitholders who Tender their Units...................................... S-55 Fairness to Unitholders who do not Tender their Units................................ S-56 Comparison of Consideration to Alternative Consideration.............................. S-56 Allocation of Consideration.................. S-57 STANGER ANALYSIS............................... S-57 Experience of Stanger........................ S-58 Summary of Materials Considered.............. S-58 Summary of Reviews........................... S-59 Conclusions.................................. S-59 Assumptions, Limitations and Qualifications............................. S-59 Compensation and Material Relationships...... S-60 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-61 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-66 CONFLICTS OF INTEREST.......................... S-70 Conflicts of Interest with Respect to the Offer...................................... S-70 Conflicts of Interest that Currently Exist for Your Partnership....................... S-70 Competition Among Properties................. S-70 Features Discouraging Potential Takeovers.... S-70 Future Exchange Offers....................... S-70
i 5001
PAGE ---- YOUR PARTNERSHIP............................... S-71 General...................................... S-71 Your Partnership and its Property............ S-71 Property Management.......................... S-71 Investment Objectives and Policies; Sale or Financing of Investments................... S-71 Capital Replacement.......................... S-72 Borrowing Policies........................... S-72 Competition.................................. S-72 Legal Proceedings............................ S-72 Selected Financial Information............... S-72 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-74 Fiduciary Responsibility of the General Partner of Your Partnership................ S-76
PAGE ---- Distributions and Transfers of Units......... S-76 Beneficial Ownership of Interests in Your Partnership................................ S-77 Compensation Paid to the General Partner and its Affiliates............................. S-77 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-78 LEGAL MATTERS.................................. S-78 EXPERTS........................................ S-78 INDEX TO FINANCIAL STATEMENTS.................. F-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
ii 5002 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 Yorktown Towers Associates. 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 $3,972 million, total debt of $1,626 million and stockholders' equity of $1,844 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 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 the National Association of Securities Dealers Automated Quotations System (also referred to as the "NASDAQ System"). 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 (also referred to as the "NYSE"). 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 5003 - 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 5, 1998, the last reported sale price of AIMCO Class A Common Stock on the New York Stock Exchange was $ . 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 5, 1998)................................ $ $ $ -- $ -- Third Quarter........................... 41 30 15/16 -- -- 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 5004 - 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 $3,543.69 per unit for the six months ended June 30, 1998 (equivalent to $7,087.38 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 distributions of $ 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 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 5005 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 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 the NASDAQ System, and there is no established trading market for your units. Secondary sales activity for the units has been limited and sporadic. Your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 100% of 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 5006 Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER? 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: 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. 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-5 5007 (This page intentionally left blank) S-6 5008 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. 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. 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 5 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. 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 S-7 5009 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. 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 Code. The particular tax consequences to you of the exchange 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 single 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. S-8 5010 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 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 S-9 5011 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 REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. 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. 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 S-10 5012 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, 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. 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 S-11 5013 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 the general partner of your partnership and the company that manages the property owned by your partnership. We currently do not own any limited partnership interest in 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 August 28, 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. Under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners or from other sources. 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 S-12 5014 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. 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. S-13 5015 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 units in the following order of priority: (1) first, all units properly tendered and not withdrawn prior to the expiration date by any person holding one or fewer units who tenders all of his or her units; and (2) second, all other units properly tendered and not withdrawn prior to the Expiration Date on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by any person. 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. 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 5016 - 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 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 S-15 5017 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 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. In reaching the capitalization rate, we considered your 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 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. We determined our offer consideration as follows: Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... % Gross valuation of your partnership's property.............. $ Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ $ 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 5018 FAIRNESS OF THE OFFER Fairness to Unitholders. We own 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. In evaluating the fairness of the offer, your general partner considered numerous factors. In evaluating these factors, your general partner did not quantify or otherwise attach particular weight to any of them. 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 Consideration 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-1 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 S-17 5019 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 is not subject to such limitations. 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 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 generated in that capacity. The property manager received management fees of $92,000 in 1996, $144,000 in 1997 and $94,787 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 Your Partnership and its Property. Yorktown Towers Associates is an Illinois limited partnership which was formed on October 16, 1981 for the purpose of owning and operating a single apartment property located in Lombard, Illinois, known as "Yorktown Apartments - #333." In 1981, it completed a private placement of units that raised net proceeds of approximately $5,300,000. Yorktown Apartments - #333 consists of 368 apartment units. Your partnership has no employees. S-18 5020 Property Management. Since December 1993, your partnership's property has been managed by an entity which is now our affiliate. 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. The property manager is affiliated with us. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Your partnership will terminate on December 31, 2050, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $12,650,000, payable to LP Commercial Conduit Mfg. Trust, which bears interest at a rate of 9.84%. The mortgage debt is due in October 2001. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units. However, your general partner does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. 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 5021 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 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 5022
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 SIX FOR THE MONTHS FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, JANUARY 10, ----------------- --------------------------- ----------- 1998 1997 1997 1996 1995 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 5023 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 the exchange offers.
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............................. (6,634) (20,663) ---------- --------- (3,035) (3,258) Minority interests in service company business............ (1) (10) ---------- --------- Partnership's shares of income from service company business............................................... (3,034) (3,268) ---------- --------- General and administrative expenses....................... (4,678) (21,228) Interest income........................................... 15,781 21,543 Interest expense.......................................... (61,812) (115,824) Minority interest......................................... (6,103) (10,044) Equity in losses of unconsolidated partnerships........... (11,743) (47,036) Equity in earnings of unconsolidated subsidiaries......... 1,996 2,344 Amortization of Goodwill.................................. (3,394) -- ---------- --------- Net income........................................ $ 10,579 $ (38,135) ========== ========= PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (0.11) $ (1.19) Diluted earnings (loss) per Common OP Unit.................. $ (0.11) $ (1.19) Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85 CASH FLOW DATA: Cash provided by operating activities(a).................... $ 84,894 $ 130,011 Cash used by investing activities(b)........................ (8,942) (17,884) Cash used by financing activities(c)........................ (93,515) (160,354) OTHER DATA: Funds from operations(d).................................... $ 121,674 $ 170,742 Weighted average number of Common OP Units outstanding...... 66,029 65,487
S-22 5024
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................................................ 4,156,963 Total mortgages and notes payable........................... 1,745,775 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 302,941 Partners' capital........................................... 1,739,831
- --------------- (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 5025 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).................................. $ 10,579 $(38,135) 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........ 3,877 7,752 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......................... 60,297 104,471 Interest on convertible debentures................. (5,012) (10,003) Preferred unit distributions....................... (15,107) (30,214) -------- -------- Funds from operations.............................. $121,674 $170,742 ======== ========
S-24 5026 SUMMARY FINANCIAL INFORMATION OF YORKTOWN TOWERS ASSOCIATES The summary financial information of Yorktown Towers Associates for the six months ended June 30, 1998 and 1997 is unaudited. The summary financial information for Yorktown Towers Associates 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 of your Partnership" included herein. See "Index to Financial Statements." YORKTOWN TOWERS ASSOCIATES
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating Data: Total Revenues......... $ 1,959,753 $ 1,858,085 $ 3,769,000 $ 3,895,000 $ 3,733,693 $ 3,594,445 $ (1) Net Income/(Loss)............ 155,114 28,750 (272,000) (75,000) (230,238) (185,131) Balance Sheet Data: Real Estate, Net of Accumulated Depreciation... 8,804,828 9,248,438 9,034,000 9,454,000 9,818,554 10,157,136 Total Assets........... 10,948,012 11,481,991 11,205,000 11,656,000 11,838,675 12,517,391 Mortgage Notes Payable, including Accrued Interest................... 12,397,287 12,490,934 12,393,000 12,483,000 12,564,473 13,356,922 Partners' Deficit............ $(2,125,411) $(1,615,024) $(1,916,000) $(1,644,000) $(1,568,812) $(1,592,696)
COMPARATIVE PER UNIT DATA Set forth below are historical and cash distributions per Common OP Unit and historical cash distributions per unit of your partnership.
AIMCO OPERATING PARTNERSHIP YOUR 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 $1.125 $1.85
- --------------- (1) Financial information for 1993 is not available. S-25 5027 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. 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 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 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, 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 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. S-26 5028 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 solely 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 Code. 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 therefore 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 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. 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 S-27 5029 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 are with respect to your units for the six months ended June 30, 1998 were $3,543.69 (equivalent to $7087.38 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 an 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 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. 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. S-28 5030 MOODY'S REVISION OF AIMCO'S OUTLOOK OF RATINGS TO NEGATIVE. On October 1, 1998, 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. Moody's 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 the general partner of your partnership and the manager of your partnership's property. We currently do not own any limited partnership interest in your partnership. 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 August 28, 1998 for Stanger to provide such fairness opinion for your partnership and other partnerships. ALTERNATIVES CONSIDERED 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. 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 S-29 5031 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. Finally, under your partnership's agreement of limited partnership, a sale of your partnership's assets and the subsequent liquidation of your partnership could occur only with the consent of the limited partners holding at least a majority of the units of your partnership. In the absence of such consent, your only 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 would 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 apartment 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 may require funding from its partners. Continuation of its operations may be dependent on additional funding from partners and from other sources. 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. Also, there are currently no distributions paid on your units while there are expected to be regular, quarterly distributions on OP Units. 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. S-30 5032 - 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 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 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 5033 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 chose to receive any of such forms of consideration for your units or any combination of such forms of consideration. 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), with appropriate adjustments to avoid purchases that would violate the AIMCO Operating Partnership's agreement of limited partnership and any relevant procedures or regulations promulgated by the AIMCO Operating Partnership's general partner. 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). 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. The AIMCO Operating Partnership reserves the right to accept for payment and pay for validly tendered units prior to 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 and the expiration of the offer. See "Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER CONSIDERATION BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. S-32 5034 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 Insignia Properties Trust ("IPT") or Insignia Properties, L.P. ("IPLP"). IPT is a Maryland business trust which operates as a REIT in the same line of business as us. As a result of the merger with Insignia Financial Group, Inc. into AIMCO on October 1, 1998, AIMCO acquired approximately 51% of the outstanding common stock of IPT. On October 3, 1998, IPT and AIMCO entered into an agreement, subject to shareholder approval, to merge IPT into AIMCO. 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 5035 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. 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. S-34 5036 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." 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. 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. S-35 5037 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, (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 9:00 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 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, Denver, Colorado time. S-36 5038 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 units in the following order of priority: (1) First, all units properly tendered and not withdrawn prior to the expiration of the offer by any person holding one or fewer units who tenders all of his or her units; and (2) Second, all other units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis, with adjustments to avoid resulting ownership of less than one unit by a tendering offeree. 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 the general partner of your partnership and thereby controls the management of your partnership. In addition, AIMCO owns 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. S-37 5039 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. 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 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 S-38 5040 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 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 S-39 5041 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 the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. 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 S-40 5042 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. 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. 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-41 5043 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-42 5044 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 payment. 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 OP Units and any such S-43 5045 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-44 5046 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-45 5047 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-46 5048 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-47 5049 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-48 5050 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-49 5051 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 are classified and subject to taxation for Federal income tax purposes as partnerships rather than as associations taxable as corporations and 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 S-50 5052 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-51 5053 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. Although you will not receive a distribution with respect to any accreted income, the offer consideration includes an amount that represents an estimate by the AIMCO Operating Partnership of cash that may be available for distribution under the terms of the AIMCO Operating Partnership's agreement of limited partnership. 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-52 5054 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 your partnership's annual net operating income. We determined an appropriate capitalization rate using our best judgment, but our valuation is just an estimate. In reaching the capitalization rate, we considered your 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 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 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 applied a capitalization rate of % to the property's annual net operating income of $ for the period from January 1, 1997 to December 31, 1997 to derive a gross property value of $ . We selected a capitalization rate of %, 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 your 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 subtracted from this gross valuation capital expenditures of $ to derive a gross property value of $ . - Second, we calculated the value of the equity of your partnership by adding to the gross property value 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-53 5055 - 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. Net operating income (January 1, 1997 to December 31, 1997)..................................................... $ Capitalization rate......................................... Gross valuation of your partnership's property.............. Less: Capital expenditures.................................. GROSS PROPERTY VALUE........................................ 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 general partner of your partnership is owned by the AIMCO Operating Partnership. Therefore, the general partner of your partnership makes no recommendation whether you should tender or refrain from tendering your units. However, the general partner of your partnership believes that our offer, including the offer consideration, is fair to you. 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-54 5056 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 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, a third party expert, 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 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 $3,543.69 per unit (equivalent to $7087.38 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-55 5057 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-56 5058 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 Consideration.................................... $ 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. 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-57 5059 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-1 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 "-- Fairness Opinion -- 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 operating statements 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, 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 apartment properties in the general market area of your partnership's property and other information relating to acquisition criteria for apartment 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; and (x) 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 apartment 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 property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed a site inspection of your partnership's property, reviewed local real estate market conditions, and S-58 5060 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 September 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 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 property was 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, S-59 5061 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 property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property 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 property 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 property 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 property 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'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-1. 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 $9,000 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-60 5062 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 under The AIMCO Operating Partnership is organized as a Illinois law for the purpose of owning and managing Delaware limited partnership. The AIMCO Operating Yorktown Apartments - #333. 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 receive until December 31, 2093, unless the AIMCO Operating regular cash distributions out of your partnership's Cash Partnership is dissolved sooner pursuant to the terms of Flow (as defined in your partnership's agreement of the AIMCO Operating Partnership's agreement of limited limited partnership). The termination date of your partnership (the "AIMCO Operating Partnership Agreement") partnership is December 31, 2050. or as provided by law. See "Description of 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 operate, manage, rent, lease and repair your conduct any business that may be lawfully conducted by a partnership's property. Subject to restrictions contained limited partnership organized pursuant to the Delaware in your partnership's agreement of limited partnership, Revised Uniform Limited Partnership Act (as amended from your partnership may perform all acts necessary or time to time, or any successor to such statute) (the appropriate in connection therewith and reasonably "Delaware Limited Partnership Act"), provided that such related thereto, including borrowing money and creating business is to be conducted in a manner that permits liens. 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-61 5063 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Additional Equity The general partner of your partnership is authorized to The general partner is authorized to issue additional issue additional limited partnership interests in your partnership interests in the AIMCO Operating Partnership partnership and may admit additional limited partners by for any partnership purpose from time to time to the selling not more than 106 units for cash and notes to limited partners and to other persons, and to admit such selected persons who fulfill the requirements set forth other persons as additional limited partners, on terms in your partnership's agreement of limited partnership. and conditions and for such capital contributions as may The capital contribution need not be equal for all be established by the general partner in its sole limited partners and no action or consent is required in discretion. The net capital contribution need not be connection with the admission of any additional limited equal for all OP Unitholders. No action or consent by the partners. 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, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Your partnership's agreement of limited partnership The AIMCO Operating Partnership may lend or contribute specifically provides for fees to the general partner and funds or other assets to its subsidiaries or other to its affiliates to be paid in consideration of persons in which it has an equity investment, and such performing services which do not constitute the duties or persons may borrow funds from the AIMCO Operating obligations of the general partner as general partner of Partnership, on terms and conditions established in the your partnership. Such fees are paid only from capital sole and absolute discretion of the general partner. To contribution or from such funds as are approved by the the extent consistent with the business purpose of the Department of Housing and Urban Development. The general AIMCO Operating Partnership and the permitted activities partner may lend funds to your partnership in its of the general partner, the AIMCO Operating Partnership discretion and charge interest thereon. 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 condi- tions consistent with the AIMCO Operating Partnership Agreement and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is authorized to The AIMCO Operating Partnership Agreement contains no borrow money for partnership purposes and, if security is restrictions on borrowings, and the general partner has required therefor, to pledge, mortgage or subject to any full power and authority to borrow money on behalf of the other security device any portion of your partnership AIMCO Operating Partnership. The AIMCO Operating assets. 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 the limited partners or their duly authorized with a statement of the purpose of such demand and at representatives to inspect and copy from the books and such OP Unitholder's own expense, to obtain a current documents of your partnership at the principal place of list of the name and last known business, residence or business of your partnership during normal business hours mailing address of the general partner and each other OP upon reasonable notice. Unitholder.
S-62 5064 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Management Control The general partner of your partnership has sole All management powers over the business and affairs of responsibility for the management of your partnership's the AIMCO Operating Partnership are vested in AIMCO-GP, business with all rights and powers generally conferred Inc., which is the general partner. No OP Unitholder has by law or necessary, advisable or consistent in any right to participate in or exercise control or connection therewith. Limited partners may not take part management power over the business and affairs of the in the management, conduct or control of the business of AIMCO Operating Partnership. The OP Unitholders have the your partnership. right to vote on certain matters described under "Comparison of Ownership of Your Units and AIMCO OP 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 the partnership, the general partner of your partnership is AIMCO Operating Partnership Agreement, the general not liable to your partnership or any limited partner for partner is not liable to the AIMCO Operating Partnership any acts performed or omission to do any act which was for losses sustained, liabilities incurred or benefits done in good faith and in accordance with sound business not derived as a result of errors in judgment or mistakes practices and your partnership's agreement of limited of fact or law of any act or omission if the general partnership. In addition, except as specifically set partner acted in good faith. The AIMCO Operating forth in your partnership's agreement of limited Partnership Agreement provides for indemnification of partnership, the general partner is not liable to the AIMCO, or any director or officer of AIMCO (in its limited partners because any taxing authorities capacity as the previous general partner of the AIMCO disallowed or adjusted income, deductions or credits in Operating Partnership), the general partner, any officer your partnership's income tax returns. Moreover, your or director of general partner or the AIMCO Operating partnership will indemnify and hold harmless the general Partnership and such other persons as the general partner partner from any claim, loss, expense, liability, action may designate from and against all losses, claims, or damage resulting from any act or omission done in good damages, liabilities, joint or several, expenses faith and in accordance with sound business practices and (including legal fees), fines, settlements and other the terms of your partnership's agreement of limited amounts incurred in connection with any actions relating partnership, including without limitation, reasonable to the operations of the AIMCO Operating Partnership, as costs and expenses of litigation and appeal (including set forth in the AIMCO Operating Partnership Agreement. reasonable fees and expenses of attorneys engaged by the The Delaware Limited Partnership Act provides that general partners in defense of such act or omission) but subject to the standards and restrictions, if any, set the general partner will not be entitled to be forth in its partnership agreement, a limited partnership indemnified or held harmless due to, or arising from, its may, and shall have the power to, indemnify and hold fraud, bad faith, gross negligence or malfeasance. 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 has partnership, if the limited partners receive a exclusive management power over the business and affairs declaratory judgment that the following actions will not of the AIMCO Operating Partnership. The general partner be deemed to be taking part in the control of the may not be removed as
S-63 5065 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP business or receive a satisfactory opinion of counsel general partner of the AIMCO Operating Partnership by the approved by limited partners owning 75% of the OP Unitholders with or without cause. Under the AIMCO outstanding units, the limited partners may remove a Operating Partnership Agreement, the general partner may, general partner and elect a new general partner upon a in its sole discretion, prevent a transferee of an OP vote of the limited partners owning more than 75% of the Unit from becoming a substituted limited partner pursuant outstanding units. If such judgment or opinion is not to the AIMCO Operating Partnership Agreement. The general obtained, the consent of all of the limited partners is partner may exercise this right of approval to deter, necessary for such actions. A general partner may sell up delay or hamper attempts by persons to acquire a to 50% of its interests owned at the time of formation controlling interest in the AIMCO Operating Partnership. with the consent of 51% or more of the limited partners. Additionally, the AIMCO Operating Partnership Agreement A limited partner may not transfer its interests without contains restrictions on the ability of OP Unitholders to the written consent of the general partners which may be transfer their OP Units. See "Description of OP withheld at the sole discretion of the general partners. Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement The general partner may, and, at the request of limited With the exception of certain circumstances set forth in partners owning more than 75% of the outstanding units, the AIMCO Operating Partnership Agreement, whereby the will, submit to the limited partners the text of any general partner may, without the consent of the OP proposed amendment to your partnership's agreement of Unitholders, amend the AIMCO Operating Partnership limited partnership. If the limited partners obtain a Agreement, amendments to the AIMCO Operating Partnership declaratory judgment that such action will not consti- Agreement require the consent of the holders of a tute control of your partnership or receive such an majority of the outstanding Common OP Units, excluding opinion of counsel, a proposed amendment will be adopted AIMCO and certain other limited exclusions (a "Majority if, within ninety days after the submission of the in Interest"). Amendments to the AIMCO Operating proposal to the limited partners, the limited partners Partnership Agreement may be proposed by the general owning 90% of the units give their consent. However, if partner or by holders of a Majority in Interest. no such judgment or opinion is obtained, proposals will Following such proposal, the general partner will submit require the consent of all limited partners to be any proposed amendment to the OP Unitholders. The general effective. In any event, amendments which reduce the partner will seek the written consent of the OP obligations of the general partners, affect the rights or Unitholders on the proposed amendment or will call a restrictions regarding assignability of the units, modify meeting to vote thereon. See "Description of OP the term of your partnership, amend the provisions Units -- Amendment of the AIMCO Operating Partnership regarding power of attorney or reduce the rights or Agreement" in the accompanying Prospectus. interests or enlarge the obligations of the limited partners require the consent of all limited partners. In addition, certain provisions are not subject to amendment.
Compensation and Fees In addition to the right to distributions in respect of The general partner does not receive compensation for its its partnership interest and reimbursement for all fees services as general partner of the AIMCO Operating and expenses as set forth in your partnership's agreement Partnership. However, the general partner is entitled to of limited partnership, the general partner receives no payments, allocations and distributions in its capacity fee for its services as general partner but may receive as general partner of the AIMCO Operating Partnership. In fees for additional services. Moreover, the general addition, the AIMCO Operating Partnership is responsible partner or certain affiliates may be entitled to for all expenses incurred relating to the AIMCO Operating compensation for additional services rendered. 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-64 5066 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Liability of Investors Under your partnership's agreement of limited Except for fraud, willful misconduct or gross negligence, partnership, limited partners are not bound by or no OP Unitholder has personal liability for the AIMCO personally liable for, the expenses, liabilities or Operating Partnership's debts and obligations, and obligations of your partnership and the liabilities of liability of the OP Unitholders for the AIMCO Operating each limited partner is limited solely to the amount of Partnership's debts and obligations is generally limited its contribution to the capital of your partnership to the amount of their investment in the AIMCO Operating required under your partnership's agreement of limited Partnership. However, the limitations on the liability of partnership. limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Partnership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of 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 not required to devote all of its Unless otherwise provided for in the relevant partnership time or business efforts to the affairs of your agreement, Delaware law generally requires a general partnership, but must devote so much of such time and partner of a Delaware limited partnership to adhere to attention to your partnership as is reasonably necessary fiduciary duty standards under which it owes its limited and advisable to manage the affairs of your partnership partners the highest duties of good faith, fairness and to the best advantage of your partnership. The general loyalty and which generally prohibit such general partner partner may engage in or possess an interest in other from taking any action or engaging in any transaction as business ventures of every nature and description, to which it has a conflict of interest. The AIMCO including, but not limited to, the acquisition, Operating Partnership Agreement expressly authorizes the ownership, financing, leasing, operation, management, general partner to enter into, on behalf of the AIMCO syndication, brokerage, sale, construction and Operating Partnership, a right of first opportunity development of real property, and neither your arrangement and other conflict avoidance agreements with partnership nor the partners shall have any rights in and various affiliates of the AIMCO Operating Partnership and to such independent business venture or the income and the general partner, on such terms as the general profits derived therefrom. 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 There are no material difference between the taxation of The AIMCO Operating Partnership is not subject to Federal your partnership and the AIMCO Operating Partnership. income taxes. Instead, each holder of OP Units includes in income its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in 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
S-65 5067 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP 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 COMMON OP UNITS PREFERRED 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, approve or disapprove the Units will have the same voting such as certain amendments and sale of all or substantially all of rights as holders of the Common OP termination of the AIMCO Operating the assets of your partnership. The Units. See "Description of OP Partnership Agreement and certain approval of all the limited Units" in the accompanying transactions such as the partners is necessary for your Prospectus. So long as any institution of bankruptcy partnership to engage in any other Preferred OP Units are outstand- proceedings, an assignment for the business than as set forth in your ing, in addition to any other vote benefit of creditors and certain partnership's agreement of limited or consent of partners required by transfers by the general partner of partnership. If the limited law or by the AIMCO Operating its interest in the AIMCO Operating partners receive a declaratory Partnership Agreement, the Partnership or the admission of a judgment that the following actions affirmative vote or consent of successor general partner. will not be deemed to be taking holders of at least 50% of the part in the control of the business outstanding Preferred OP Units will Under the AIMCO Operating Partner- or receive a satisfactory opinion be necessary for effecting any ship Agreement, the general partner of counsel approved by amendment of any of the has
S-66 5068 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS limited partners owning 75% or more provisions of the Partnership Unit the power to effect the of the outstanding units, the Designation of the Preferred OP acquisition, sale, transfer, limited partners owning 90% or more Units that materially and adversely exchange or other disposition of of all of the units may amend your affects the rights or preferences any assets of the AIMCO Operating partnership's agreement of limited of the holders of the Preferred OP Partnership (including, but not partnership, subject to certain Units. The creation or issuance of limited to, the exercise or grant limitations; the limited partners any class or series of partnership of any conversion, option, owning more than 66 2/3% may units, including, without privilege or subscription right or authorized the dissolution and limitation, any partnership units any other right available in termination of your partnership; that may have rights senior or connection with any assets at any and the limited partners owning 75% superior to the Preferred OP Units, time held by the AIMCO Operating or more of the outstanding units shall not be deemed to materially Partnership) or the merger, may remove a general partner and adversely affect the rights or consolidation, reorganization or elect a new general partner. preferences of the holders of other combination of the AIMCO However, in the absence of such Preferred OP Units. With respect to Operating Partnership with or into determination or opinion, the con- the exercise of the above de- another entity, all without the sent of all of the limited partners scribed voting rights, each consent of the OP Unitholders. is required. Preferred OP Units shall have one A general partner may cause the (1) vote per Preferred OP Unit. The general partner may cause the dissolution of the your partnership dissolution of the AIMCO Operating by retiring when there are no Partnership by an "event of remaining general partners, unless withdrawal," as defined in the the limited partners owning more Delaware Limited Partnership Act the 75% of the then outstanding (including, without limitation, units elect a new general partner bankruptcy), unless, within 90 days within sixty days of such after the withdrawal, holders of a retirement. "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 from Cash Flow will $ per Preferred OP Unit; tribute quarterly all, or such be determined by the general provided, however, that at any time portion as the general partner may partners as of the last day of each and from time to time on or after in its sole and absolute discretion semi-annual period of each fiscal the fifth anniversary of the issue determine, of Available Cash (as year and will be distributed at date of the Preferred OP Units, the defined in the AIMCO Operating convenient periodic intervals, not AIMCO Operating Partnership may Partnership Agreement) generated by less than semi-annually, within adjust the annual distribution rate the AIMCO Operating Partnership sixty days after the close of such on the Preferred OP Units to the during such quarter to the general semi-annual period. The lower of (i) % plus the annual partner, the special limited distributions payable to the interest rate then applicable to partner and the holders of Common partners are not fixed in amount U.S. Treasury notes with a maturity OP Units on the record date and depend upon the operating of five years, and (ii) the annual established by the general partner results and net sales or dividend rate on the most recently with respect to such quarter, in refinancing proceeds available from issued AIMCO non-convertible accordance with their respective the disposition of your preferred stock which ranks on a interests in the AIMCO Operating partnership's assets. Your partner- parity with its Class H Cumu- Partnership on such record date. ship has made distributions in the lative Preferred Stock. Such Holders of any other Preferred OP past and is projected to make distributions will be cumulative Units issued in the future may have distributions in 1998. 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 Available Cash, distributions
S-67 5069 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS on the Preferred OP Units. No upon liquidation or other interest, or sum of money in lieu distributions. See "Per Share and of interest, shall be payable in Per Unit Data" in the accompanying respect of any distribution pay- Prospectus. ment or payments on the Preferred OP Units that may be in arrears. The general partner in its sole and absolute discretion may distribute When distributions are not paid in to the OP Unitholders Available full upon the Preferred OP Units or Cash on a more frequent basis and any Parity Units, all distributions provide for an appropriate record declared upon the Preferred OP date. Units and any Parity Units shall be declared ratably in proportion to The AIMCO Operating Partnership the respective amounts of Agreement requires the general distributions accumulated, accrued partner to take such reasonable and unpaid on the Preferred OP efforts, as determined by it in its Units and such Parity Units. Unless sole and absolute discretion and full cumulative distributions on consistent with AIMCO's the Preferred OP Units have been qualification as a REIT, to cause declared and paid, except in the AIMCO Operating Partnership to limited circumstances, no distribute sufficient amounts to distributions may be declared or enable the general partner to paid or set apart for payment by transfer funds to AIMCO and enable the AIMCO Operating Partnership and AIMCO to pay stockholder dividends no other distribution of cash or that will (i) satisfy the other property may be declared or requirements for qualifying as a made, directly or indirectly, by REIT under the Code and the the AIMCO Operating Partnership Treasury Regulations and (ii) avoid with respect to any Junior Units, any Federal income or excise tax nor 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: (i) the Preferred OP Units and the OP Units. The AIMCO Operating Part- transferee is a citizen and Preferred OP Units are not listed nership Agreement restricts the resident of the United States, (ii) on any securities exchange. The transferability of the OP Units. the transferor delivers to the Preferred OP Units are subject to Until the expiration of one year general partner a satisfactory, restrictions on transfer as set from the date on which an OP unqualified opinion of counsel that forth in the AIMCO Operating Unitholder acquired OP Units, the transfer does not violate Partnership Agreement. subject to certain exceptions, such Federal or state securities laws, OP Unitholder may not transfer all (iii) the transferee executes a Pursuant to the AIMCO Operating or any portion of its OP Units to statement that it is acquiring the Partnership Agreement, until the any transferee without the consent units for investment and (iv) the expiration of one year from the of the general partner, which general partner consents to the date on which a holder of Preferred consent may be withheld in its sole transfer, the granting or denial of OP Units acquired Preferred OP and absolute discretion. After the which is in its sole discretion and Units, subject to certain expiration of one year, such OP will be denied if such transfer exceptions, such holder of Unitholder has the right to will result in the termination of Preferred OP Units may not transfer transfer all or any portion of its your partnership for income tax all or any portion of its Pre- OP Units to any person, subject to purposes. Such transferee may be ferred OP Units to any transferee the satisfaction of certain substituted as a limited partner without the consent of the general conditions specified in the AIMCO if, in addition to the above partner, which consent may be Operating Partnership Agreement, requirements: (i) a written withheld in its sole and absolute including the general partner's assignment has been duly executed discretion. After the expiration of right of first refusal. See and acknowledged by the assignor one year, such holders of Preferred "Description of OP Units -- and assignee, (ii) the assignor or OP Units has the right to transfer Transfers and Withdrawals" in the the assignee pays a transfer fee, all or any portion of its Preferred accompanying Prospectus. (iii) an amendment to the OP Units to any person, subject to certificate of limited partnership the satisfaction of certain After the first anniversary of is filed and (iv) the assignor and conditions specified in the AIMCO becoming a holder of Common OP assignee have complied with such Operating Partnership Agreement, Units, an OP Unitholder has the other conditions as set forth in including the general partner's right, subject to the terms and your partnership's agreement of right of first refusal. conditions of the AIMCO Operating limited partnership. Partnership Agreement, to re-
S-68 5070 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS There are no redemption rights After a one-year holding period, a quire the AIMCO Operating associated with your units. 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 general partner may, in its Stock of AIMCO that pay an sole and absolute discretion but aggregate amount of dividends yield subject to the restrictions on the equivalent to the distributions on ownership of Class A Common Stock the Preferred OP Units tendered for imposed under the AIMCO's charter redemption and are part of a class and the transfer restrictions and or series of preferred stock that other limitations thereof, elect to is then listed on the New York cause AIMCO to acquire some or all Stock Exchange or another national of the 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-69 5071 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a 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's 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 own 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 generated in that capacity, and may receive fees for additional services from your partnership. The property manager received management fees of $92,000 in 1996, $144,000 in 1997 and $94,787 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's 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'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 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-70 5072 YOUR PARTNERSHIP GENERAL Yorktown Towers, Associates is an Illinois limited partnership which raised net proceeds of approximately $5,300,000 in 1981 through a private offering. The promoter for the private offering of your partnership was Bache Halsey Stuart Shields Inc. Insignia acquired your partnership in December 1993. AIMCO acquired Insignia in October, 1998. There are currently a total of 56 limited partners of your partnership and a total of 106 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the single apartment property described below. Your partnership has no employees. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 16, 1981 for the purpose of owning and operating a single apartment property located in Lombard, Illinois, known as "Yorktown Apartments - #333." Your partnership's property consists of 368 apartment units. The total rentable square footage of your partnership's property is 332,088 square feet. Your partnership's property had an average occupancy rate of approximately 0% in 1996 and 0% in 1997. The average annual rent per apartment unit is approximately $9,262. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/dryer, microwave, fireplace, and patio/balcony. PROPERTY MANAGEMENT Since December 1993, your partnership's property has been managed by an entity which is now an affiliate 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. The management fee which your partnership paid the property manager during 1996, 1997 and the first six months of 1998 were $92,000, $144,000 and $94,787, respectively. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on December 31, 2050 unless earlier dissolved. Your partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. S-71 5073 CAPITAL REPLACEMENT Your partnership maintains an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of June 30, 1998, your partnership had a current mortgage note outstanding of $12,650,000, payable to LP Commercial Conduit Mfg. Trust, which bears interest at a rate of 9.84%. The mortgage debt is due in October 2001. Your partnership's agreement of limited partnership also allows the general partner of your partnership to lend funds to your partnership. Currently, the general partner of your partnership has no loan outstanding to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. SELECTED FINANCIAL INFORMATION Set forth on page F-1 of this Prospectus Supplement is the Index to the Financial Statements of Your Partnership. YOU ARE URGED TO READ THE FINANCIAL STATEMENTS CAREFULLY BEFORE MAKING ANY DECISION WHETHER TO TENDER YOUR UNITS IN THE OFFER. S-72 5074 Below is selected financial information for Yorktown Towers Associates taken from the financial statements described above. See "Index to Financial Statements."
YORKTOWN TOWERS ASSOCIATES ----------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA Cash and Cash Equivalents.... $ 1,380,272 $ 908,875 $ 1,405,000 $ 760,000 $ 676,080 $ 1,137,900 Information Land & Building.............. 17,657,349 17,543,607 17,601,000 17,463,000 17,240,470 17,033,786 not Accumulated Depreciation..... (8,852,521) (8,295,169) (8,567,000) (8,009,000) (7,421,916) (6,876,650) Available Other Assets................. 762,912 1,324,678 766,000 1,442,000 1,344,041 1,222,355 ----------- ----------- ----------- ----------- ----------- ----------- Total Assets........ $10,948,012 $11,481,991 $11,205,000 $11,656,000 $11,838,675 $12,517,391 =========== =========== =========== =========== =========== =========== Mortgage & Accrued Interest................... $12,397,287 $12,490,934 $12,393,000 $12,483,000 $12,564,473 $13,356,922 Other Liabilities............ 676,136 606,081 728,000 817,000 843,014 753,165 ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities... 13,073,423 13,097,015 13,121,000 13,300,000 13,407,487 14,110,087 ----------- ----------- ----------- ----------- ----------- ----------- Partners' Deficit............ $(2,125,411) $(1,615,024) $(1,916,000) $(1,644,000) $(1,568,812) $(1,592,696) =========== =========== =========== =========== =========== ===========
YORKTOWN TOWERS ASSOCIATES ------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED JUNE 30, DECEMBER 31, ------------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA Rental Revenue..................... $1,817,154 $1,721,213 $3,500,000 $3,587,000 $3,438,526 $3,317,000 Information Other Income....................... 142,599 136,872 269,000 308,000 295,167 277,445 not ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. $1,959,753 $1,858,085 $3,769,000 $3,895,000 $3,733,693 $3,594,445 Available ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................. 622,519 679,717 1,642,000 1,591,000 1,568,678 1,456,127 General & Administrative........... 72,516 98,078 92,000 71,000 110,703 107,354 Depreciation....................... 286,000 286,000 572,000 587,000 545,288 523,833 Interest Expense................... 609,150 613,272 1,302,000 1,316,000 1,322,766 1,308,463 Property Taxes..................... 214,454 152,268 433,000 405,000 416,496 383,799 ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ $1,804,639 $1,829,335 $4,041,000 $3,970,000 $3,963,931 $3,779,576 ---------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss).................. $ 155,114 $ 28,750 $ (272,000) $ (75,000) $ (230,238) $ (185,131) ========== ========== ========== ========== ========== ==========
S-73 5075 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the results of operations and financial condition of your partnership should be read in conjunction with the audited financial statements of your partnership included herein. Results of Operations Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended June 30, 1997 Net Income Your partnership recognized net income of $155,114 for the six months ended June 30, 1998, compared to $28,750 for the six months ended June 30, 1997. The increase in net income of $126,364, or 439.53% was primarily the result of increases in rental revenue due to lower vacancy losses offset by a decrease in other income. Revenues Rental and other property revenues from the partnership's property totaled $1,959,753 for the six months ended June 30, 1998, compared to $1,858,085 for the six months ended June 30, 1997, an increase of $101,668, or 5.47%. This increase was primarily due to an increase in occupancy. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $622,519 for the six months ended June 30, 1998, compared to $679,717 for the six months ended June 30, 1997, a decrease of $57,198 or 8.41%. This was primarily the result of decreases in utilities, taxes, licenses and fees and furniture rentals. Management expenses totaled $94,787 for the six months ended June 30, 1998, compared to $88,520 for the six months ended June 30, 1997, an increase of $6,267, or 7.08%. The increase resulted from increases in rental revenue as management fees are calculated as a percentage of revenue. General and Administrative Expenses General and administrative expenses totaled $72,516 for the six months ended June 30, 1998 compared to $98,078 for the six months ended June 30, 1997, a decrease of $25,562 or 26.06%. The decrease is primarily due to a decrease in office supply expenses. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $609,150 for the six months ended June 30, 1998, compared to $613,272 for the six months ended June 30, 1997, a decrease of $4,122, or 0.67%. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net Income Your partnership recognized a net loss of $272,000 for the year ended December 31, 1997, compared to a net loss of $75,000 for the year ended December 31, 1996. The decrease in net income of $197,000, or 262.67% was primarily the result of decreased revenues. Revenues Rental and other property revenues from the partnership's property totaled $3,769,000 for the year ended December 31, 1997, compared to $3,895,000 for the year ended December 31, 1996, a decrease of $126,000, or 3.23%. S-74 5076 Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,642,000 for the year ended December 31, 1997, compared to $1,591,000 for the year ended December 31, 1996, an increase of $51,000 or 3.21%. Management expenses totaled $144,000 for the year ended December 31, 1997, compared to $92,000 for the year ended December 31, 1996, an increase of $52,000, or 56.52%. In 1996, the property was managed by a third party and in April of 1997 Insignia took over management, which caused property management fees to increase. General and Administrative Expenses General and administrative expenses totaled $92,000 for the year ended December 31, 1997 compared to $71,000 for the year ended December 31, 1996, an increase of $21,000 or 29.58%. The increase is primarily due to an increase in audit fees of $6,000 and an overall increase in various administrative expenses. Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,302,000 for the year ended December 31, 1997, compared to $1,316,000 for the year ended December 31, 1996, a decrease of $14,000, or 1.06%. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 Net Income Your partnership recognized a net loss of $75,000 for the year ended December 31, 1996, compared to a net loss $230,238 for the year ended December 31, 1995. The decrease of $155,238, or 67.43% was primarily the result of increased revenues of approximately $161,000. Revenues Rental and other property revenues from the partnership's property totaled $3,895,000 for the year ended December 31, 1996, compared to $3,733,693 for the year ended December 31, 1995, an increase of $161,307, or 4.32%. This is attributed to the property implementing a corporate suites program in 1996, which offers furnished units at higher rates. Expenses Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $1,591,000 for the year ended December 31, 1996, compared to $1,568,678 for the year ended December 31, 1995, an increase of $22,322 or 1.42%. Management expenses totaled $92,000 for the year ended December 31, 1996, compared to $66,229 for the year ended December 31, 1995, an increase of $25,771, or 38.91%. Property management fees are based on total revenue. In 1996, revenues increased which caused property management fees to increase. General and Administrative Expenses General and administrative expenses totaled $71,000 for the year ended December 31, 1996 compared to $110,703 for the year ended December 31, 1995, a decrease of $39,703 or 35.86%. The decrease is primarily due to decrease in professional service fees and general decrease in various administrative expenses. S-75 5077 Interest Expense Interest expense, which includes the amortization of deferred financing costs, totaled $1,316,000 for the year ended December 31, 1996, compared to $1,322,766 for the year ended December 31, 1995, a decrease of $6,766, or 0.51%. Liquidity and Capital Resources As of June 30, 1998, your partnership had $1,380,272 in cash and cash equivalents. Your partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. Your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. 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 to your partnership or any limited partner for any acts performed or omission to do any act which was done in good faith and in accordance with sound business practices and your partnership's agreement of limited partnership. In addition, except as specifically set forth in your partnership's agreement of limited partnership, the general partner is not liable to the limited partners because any taxing authorities disallowed or adjusted income, deductions or credits in your partnership's income tax returns. 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 owned by AIMCO. See "Conflicts of Interest". Your partnership will indemnify and hold harmless the general partner from any claim, loss, expense, liability, action or damage resulting from any act or omission done in good faith and in accordance with sound business practices and the terms of your partnership's agreement of limited partnership, including without limitation, reasonable costs and expenses of litigation and appeal (including reasonable fees and expenses of attorneys engaged by the general partner in defense of such act or omission) but the general partner will not be entitled to be indemnified or held harmless due to, or arising from, its fraud, bad faith, gross negligence or malfeasance. As part of its assumption of liabilities in the consolidation, AIMCO will indemnify the general partner of your partnership and their affiliates for periods prior to and following the consolidation to the extent of the indemnity under the terms of your partnership's agreement of limited partnership and applicable law. 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 AND TRANSFERS OF UNITS Distributions The following table sets forth the distributions paid per unit in the periods indicated below. Amounts paid in the indicated quarter were determined based upon operations of your partnership during the preceding quarter.
YEAR DISTRIBUTIONS - ---- ------------- 1994........................................................ $ 0.00 1995........................................................ 0.00 1996........................................................ 0.00 1997........................................................ 0.00 1998 (through June 30)...................................... 3,543.69
S-76 5078 Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in sale transactions (i.e., excluding transactions believed to be between related parties, family members or the same beneficial owner) was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0 0 1995......................... 0 0 0 1996......................... 0 0 0 1997......................... 0 0 0 1998 (through June 30)....... 0.5 1.01% 1
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Neither AIMCO, 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 transaction in the units, 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 its capacity as general partner of your partnership as described in the following table:
YEAR COMPENSATION DISTRIBUTIONS - ---- --------------- ------------- 1994............................................. $Unavailable 1995............................................. 92,702 1996............................................. 62,000 1997............................................. 61,000 1998 (through June 30)........................... Unavailable
In addition, an affiliate of AIMCO manages the property of your partnership. Your partnership has historically paid the property management fees as described in the following table:
YEAR COMPENSATION - ---- ------------ 1995........................................... $66,229 1996........................................... 92,000 1997........................................... 144,000 1998 (through June 30)......................... 94,787
S-77 5079 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 company 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 AIMCO: Information Agent Fees...................................... $ Accountant's Fees........................................... $ Legal Fees.................................................. $ Printing Fees............................................... $ Stanger's Fees.............................................. $ Other....................................................... $
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 audited financial statements of Yorktown Towers Associates at December 31, 1997, 1996 and 1995 and for each of the years then ended, appearing in this Prospectus Supplement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. S-78 5080 YORKTOWN TOWERS ASSOCIATES INDEX FINANCIAL STATEMENT
PAGE ---- Condensed Balance Sheet as of June 30, 1998 (Unaudited)..... F-2 Condensed Statements of Operations for the six months ended June 30, 1998 and 1997 (Unaudited)............................................... F-3 Condensed Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (Unaudited)........................ F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-6 Balance Sheet as of December 31, 1997....................... F-7 Statement of Operations for the year ended December 31, 1997...................................................... F-8 Statement of Changes in Partners' Deficit for the year ended December 31, 1997......................................... F-9 Statement of Cash Flows for the year ended December 31, 1997...................................................... F-10 Notes to Financial Statements............................... F-11 Independent Auditors' Report................................ F-15 Balance Sheet as of December 31, 1996....................... F-16 Statement of Operations for the year ended December 31, 1996...................................................... F-17 Statement of Changes in Partners' Deficit for the year ended December 31, 1996......................................... F-18 Statement of Cash Flows for the year ended December 31, 1996...................................................... F-19 Notes to Financial Statements............................... F-20 Independent Auditors' Report................................ F-23 Balance Sheet as of December 31, 1995....................... F-24 Statements of Operations for the years ended December 31, 1995...................................................... F-25 Statement of Changes in Partners' Deficit for the year ended December 31, 1995......................................... F-26 Statements of Cash Flows for the years ended December 31, 1995...................................................... F-27 Notes to Financial Statements............................... F-28
F-1 5081 YORKTOWN TOWERS ASSOCIATES CONDENSED BALANCE SHEET JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 1,380,272 Receivables and Deposits.................................... 77,263 Investments................................................. 0 Restricted Escrows.......................................... 169,421 Other Assets................................................ 516,228 Investment Property: Land...................................................... $ 1,475,040 Building and related personal property.................... 16,182,309 ----------- 17,657,349 Less: Accumulated depreciation............................ (8,852,521) 8,804,828 ----------- ------------ Total Assets...................................... $ 10,948,012 ============ LIABILITIES AND PARTNERS' CAPITAL Accounts payable............................................ $ 73,215 Other Accrued Liabilities................................... 163,316 Property Taxes Payable...................................... 433,372 Tenant Security Deposits.................................... 58,050 Notes Payable............................................... 12,345,470 Partners' Deficit........................................... (2,125,411) ------------ Total Liabilities and Partners' Capital........... $ 10,948,012 ============
F-2 5082 YORKTOWN TOWERS ASSOCIATES CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 ---------- ---------- Revenues: Rental Income............................................. $1,817,154 $1,721,213 Other Income.............................................. 142,599 136,872 ---------- ---------- Total Revenues.................................... 1,959,753 1,858,085 Expenses: Operating Expenses........................................ 622,519 679,717 General and Administrative Expenses....................... 72,516 98,078 Depreciation Expense...................................... 286,000 286,000 Interest Expense.......................................... 609,150 613,272 Property Tax Expense...................................... 214,454 152,268 ---------- ---------- Total Expenses.................................... 1,804,639 1,829,335 Net Income........................................ $ 155,114 $ 28,750 ========== ==========
F-3 5083 YORKTOWN TOWERS ASSOCIATES CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDING JUNE 30, 1998 AND 1997 (UNAUDITED)
JUNE 30, JUNE 30, 1998 1997 ---------- --------- Operating Activities: Net Income................................................ $ 155,114 $ 28,750 Adjustments to reconcile net income to net cash provided by operating Activities: Depreciation and Amortization.......................... 286,000 286,000 Changes in accounts: Receivables and deposits and other assets............ 196,737 (216,566) Accounts Payable and accrued expenses................ (189,800) (158,876) ---------- --------- Net cash provided by (used in) operating activities...................................... 448,051 110,059 ---------- --------- Investing Activities: Property improvements and replacements.................... (56,828) (80,438) Net (increase)/decrease in restricted escrows............. (3,421) 297,137 ---------- --------- Net cash provided by (used in) investing activities...................................... (60,249) 216,699 ---------- --------- Financing Activities: Payments on mortgage...................................... (47,530) (43,883) Partners' Distributions................................... (365,000) ---------- --------- Net cash provided by (used in) financing activities...................................... (412,530) (43,883) ---------- --------- Net increase (decrease) in cash and cash equivalents..................................... (24,728) 282,875 Cash and cash equivalents at beginning of year.............. 1,405,000 626,000 ---------- --------- Cash and cash equivalents at end of period.................. $1,380,272 $ 908,875 ========== =========
F-4 5084 YORKTOWN TOWERS ASSOCIATES NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Yorktown Towers Associates as of June 30, 1998 and for the six months ended June 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. F-5 5085 REPORT OF INDEPENDENT AUDITORS To the Partners of Yorktown Towers Associates (a Limited Partnership) We have audited the accompanying balance sheet of Yorktown Towers Associates, as of December 31, 1997, and the related statement of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Yorktown Towers Associates at December 31, 1997, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP March 13, 1998 Greenville, South Carolina F-6 5086 YORKTOWN TOWERS ASSOCIATES BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) ASSETS Cash and cash equivalents................................... $ 1,405 Receivables and deposits.................................... 274 Restricted escrows.......................................... 166 Other assets................................................ 326 Investment property (Note B): Land...................................................... $ 1,475 Buildings and related personal property................... 16,126 ------- 17,601 Less accumulated depreciation............................. (8,567) 9,034 ------- ------- $11,205 ======= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 5 Tenant security deposit liabilities....................... 73 Other liabilities......................................... 650 Mortgage note payable (Note B)............................ 12,393 Partners' deficit: General partner........................................... (48) Limited partners (103 units issued and outstanding)....... (1,868) ------- (1,916) ------- $11,205 =======
See accompanying notes. F-7 5087 YORKTOWN TOWERS ASSOCIATES STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Revenues: Rental income............................................. $3,500 Other income.............................................. 264 Gain on disposal of property.............................. 5 ------ Total revenues.................................... 3,769 Expenses: Operating (Note C)........................................ $1,642 General and administrative (Note C)....................... 92 Depreciation.............................................. 572 Interest.................................................. 1,302 Property taxes............................................ 433 4,041 ------ ------ Net loss.......................................... $ (272) ======
See accompanying notes. F-8 5088 YORKTOWN TOWERS ASSOCIATES STATEMENT OF CHANGES IN PARTNERS' DEFICIT (IN THOUSANDS)
GENERAL LIMITED PARTNER PARTNERS TOTAL ------- -------- ------- Partners' deficit at December 31, 1996...................... $(45) $(1,599) $(1,644) Net loss for the year ended December 31, 1997............. (3) (269) (272) ---- ------- ------- Partners' deficit at December 31, 1997...................... $(48) $(1,868) $(1,916) ==== ======= =======
See accompanying notes. F-9 5089 YORKTOWN TOWERS ASSOCIATES STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) Cash flows from operating activities Net loss.................................................. $ (272) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 572 Amortization of loan costs............................. 77 Gain on disposal of property........................... (5) Changes in accounts: Receivables and deposits............................. 460 Other assets......................................... (21) Accounts payable..................................... (59) Tenant security deposit liabilities.................. (59) Other liabilities.................................... 29 ------ Net cash provided by operating activities......... 722 Cash flows from investing activities Property improvements and replacements.................... (161) Proceeds from sale of property............................ 14 Net withdrawals from restricted escrows................... 294 ------ Net cash provided by investing activities................. 147 Cash flows from financing activities Principal payments on mortgage note payable............... (90) ------ Increase in cash and cash equivalents..................... 779 Cash and cash equivalents at December 31, 1996............ 626 ------ Cash and cash equivalents at December 31, 1997............ $1,405 ====== Supplemental disclosure of cash flow information Cash paid during the year for interest.................... $1,225 ======
See accompanying notes. F-10 5090 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Yorktown Towers Associates (the "Partnership") is an Illinois limited partnership organized in November 1981 to acquire and operate a residential property located in Lombard, Illinois. The General Partner ("General Partner") is MAERIL, Inc., an affiliate of Insignia Financial Group, Inc. Allocation of Profits, Gains, Losses and Cash Distributions Pursuant to the terms of the Partnership Agreement, losses will be allocated 99% to the Limited Partners and 1% to the General Partner. Profits will be allocated in accordance with distributions of cash flow (as described below). Profits from the sale, exchange or other distribution of the Partnership's property will be allocated to the General Partner in an amount equal to the greater of 1% of such profits or the amount of cash distributable to the General Partner from any such sale or refinancing (as described below). Losses from the sale, exchange or other distribution of the Partnership property will be allocated 1% to the General Partner. The remaining sale, exchange or other distribution profits and losses will be allocated to the Limited Partners. Distributions of cash flow of the Partnership will be allocated first to the Limited Partners in an amount ranging from 5% to 14% per annum on a non-cumulative basis of their aggregate capital contributions, and the balance 66 2/3% to the Limited Partners and 33 1/3% to the General Partner. Distributions of proceeds arising from the sale or refinancing of the Partnership property will be allocated 66 2/3% to the Limited Partners and 33 1/3% to the General Partner. However, all such distributions to the General Partner are subordinated to the Limited Partners' receipt of their capital, plus the stipulated return thereon. Loan Costs Loan costs of $538,000 incurred with the financing of the mortgage note payable are included in "Other assets" and are being amortized on a straight-line basis over the life of the loan. Accumulated amortization at December 31, 1997 is $248,000. Income Taxes The financial statements include only those assets and liabilities and revenues and expenses which relate to the business of the Partnership. No provision has been made for Federal income taxes since such taxes are the personal responsibility of the partners. Depreciation Depreciation is computed utilizing the straight-line method over an estimated useful life of 10 to 40 years for buildings and improvements and 5 years for furniture and fixtures. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. F-11 5091 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and such deposits are included in "Receivables and deposits". Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Leases The Partnership generally leases apartment units for twelve-month terms or less. Restricted Escrows 1) Capital Improvement Reserves At the time of the refinancing of the mortgage note payable, $365,000 of the proceeds were designated for "capital improvement escrows" for certain capital improvements. During 1997, the balance in this escrow was withdrawn to fund capital improvements at the property. 2) Replacement Reserve Account In addition to the Capital Improvement Reserves, replacement reserves of $147,000 were established with the refinancing proceeds. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. At December 31, 1997, the balance was $166,000. Investment Property The investment property is stated at cost. The Partnership records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising Costs Advertising costs ($54,000 in 1997) are charged to expense as they are incurred and are included in operating expenses. NOTE B -- MORTGAGE NOTE PAYABLE (DOLLAR AMOUNTS IN THOUSANDS) The Principal terms of the mortgage note payable are as follows: Mortgage note payable to Lexington Mortgage Company, secured by a deed of trust on the Yorktown Towers Apartments. This note bears interest at a rate of 9.84% per annum. Monthly installments of principal and interest of $110 are due through October 2001...................................... $12,393 =======
F-12 5092 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The mortgage note payable is non-recourse to the Partnership and is secured by pledge of the investment property and by pledge of revenues from the property. The note may be repaid prior to maturity, including a prepayment penalty of a minimum of 1% of the outstanding balance. Scheduled principal payments of the mortgage note payable subsequent to December 31, 1997, are as follows: 1998...................................................... $ 99 1999...................................................... 109 2000...................................................... 121 2001...................................................... 12,064 ------- $12,393 =======
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The partnership agreement provides for payments to affiliates of the General Partner for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were paid to the affiliates of the General Partner in 1997 (in thousands): Property management fees.................................... $144 Reimbursement for investor services, asset management and partnership accounting.................................... 61
NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION INITIAL COST TO PARTNERSHIP (IN THOUSANDS)
BUILDINGS AND RELATED COST CAPITALIZED PERSONAL SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION ----------- ------------ ------ ----------- ---------------- Yorktown Towers........................... $12,393 $1,475 $11,684 $4,442 ======= ====== ======= ======
GROSS AMOUNT AT WHICH CARRIED (IN THOUSANDS)
BUILDINGS AND RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS ----------- ------ ----------- ------- ------------ -------- ------------- Yorktown Towers......... $1,475 $16,126 $17,601 $8,567 11/81 5-40 ====== ======= ======= ======
F-13 5093 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Reconciliation of "Investment Property and Accumulated Depreciation" (in thousands): INVESTMENT PROPERTY Balance at beginning of year................................ $17,463 Property disposals.......................................... (19) Property improvements....................................... 157 ------- Balance at end of year............................ $17,601 ======= ACCUMULATED DEPRECIATION Balance at beginning of year................................ $ 8,009 Property disposals.......................................... (14) Additions charged to expense................................ 572 ------- Balance at end of year............................ $ 8,567 =======
The aggregate cost of the investment property for Federal income tax purposes at December 31, 1997 is $17,601,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1997 is $15,327,000. NOTE E -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-14 5094 REPORT OF INDEPENDENT AUDITORS To the Partners of Yorktown Towers Associates (a Limited Partnership) We have audited the accompanying balance sheet of Yorktown Towers Associates, as of December 31, 1996, and the related statement of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Yorktown Towers Associates as of December 31, 1996, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP March 4, 1997 Greenville, South Carolina F-15 5095 YORKTOWN TOWERS ASSOCIATES BALANCE SHEET DECEMBER 31, 1996 (IN THOUSANDS) ASSETS Cash and cash equivalents: Unrestricted.............................................. $ 626 Restricted -- tenant security deposits.................... 134 Accounts receivable......................................... 12 Escrow for taxes............................................ 588 Restricted escrows.......................................... 460 Other assets................................................ 382 Investment property (Note B): Land...................................................... $ 1,475 Buildings and related personal property................... 15,988 ------- 17,463 Less accumulated depreciation............................. (8,009) 9,454 ------- -------- $ 11,656 ======== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 64 Tenant security deposits.................................. 132 Other liabilities......................................... 621 Mortgage note payable (Note B)............................ 12,483 Partners' deficit: General partners.......................................... (45) Limited partners (103 units issued and outstanding)....... (1,599) -------- (1,644) -------- $ 11,656 ========
See accompanying notes. F-16 5096 YORKTOWN TOWERS ASSOCIATES STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Revenues: Rental income............................................. $3,587 Other income.............................................. 308 ------ Total revenues.................................... 3,895 Expenses: Operating................................................. 1,229 General and administrative................................ 71 Maintenance............................................... 362 Depreciation.............................................. 587 Interest.................................................. 1,316 Property taxes............................................ 405 ------ Total expenses.................................... 3,970 ------ Net loss.......................................... $ (75) ======
See accompanying notes. F-17 5097 YORKTOWN TOWERS ASSOCIATES STATEMENT OF CHANGES IN PARTNERS' DEFICIT (IN THOUSANDS)
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- -------- ------- Partners' deficit at December 31, 1995...................... $(44) $(1,525) $(1,569) Net loss for the year ended December 31, 1996............. (1) (74) (75) ---- ------- ------- Partners' deficit at December 31, 1996...................... $(45) $(1,599) $(1,644) ==== ======= =======
See accompanying notes. F-18 5098 YORKTOWN TOWERS ASSOCIATES STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS) Cash flows from operating activities Net loss.................................................. $ (75) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation........................................... 587 Amortization of loan costs............................. 77 Changes in accounts: Accounts receivable.................................. (5) Escrow for taxes..................................... (240) Other assets......................................... (2) Accounts payable..................................... (31) Tenant security deposit liabilities.................. (11) Other liabilities.................................... 15 ------ Net cash provided by operating activities......... 315 Cash flows from investing activities Property improvements and replacements.................... (222) Deposits to restricted escrows............................ (25) Withdrawals from restricted escrows....................... 97 ------ Net cash used in investing activities............. (150) Cash flows from financing activities Principal payments on mortgage note payable............... (81) ------ Increase in cash.......................................... 84 Unrestricted cash at December 31, 1995.................... 542 ------ Unrestricted cash December 31, 1996....................... $ 626 ====== Supplemental disclosure of cash flow information Cash paid for interest.................................... $1,233 ======
See accompanying notes. F-19 5099 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Yorktown Towers Associates ("Partnership") is an Illinois limited partnership organized in November 1981 to acquire and operate a residential property located in Lombard, Illinois. VMS Realty Investment Ltd. and VMS Realty, Inc., the Partnership's former general partners, withdrew from the Partnership and transferred their partnership interests to MAERIL, Inc., (the "General Partner") an affiliate of Insignia Financial Group, Inc., effective February 23, 1995. Allocation of Profits, Gains, Losses and Cash Distributions Pursuant to the terms of the Partnership Agreement, losses will be allocated 99% to the Limited Partners and 1% to the General Partners. Profits will be allocated in accordance with distributions of cash flow (as described below). Profits from the sale, exchange or other distribution of the Partnership's property will be allocated to the General Partners in an amount equal to the greater of 1% of such profits or the amount of cash distributable to the General Partners from any such sale or refinancing (as described below). Losses from the sale, exchange or other distribution of the Partnership property will be allocated 1% to the General Partners. The remaining sale, exchange or other distribution profits and losses will be allocated to the Limited Partners. Distributions of cash flow of the Partnership will be allocated first to the Limited Partners in an amount ranging from 5% to 14% per annum on a non-cumulative basis of their aggregate capital contributions, and the balance 66 2/3% to the Limited Partners and 33 1/3% to the General Partners. Distributions of proceeds arising from the sale or refinancing of the Partnership property will be allocated 66 2/3% to the Limited Partners and 33 1/3% to the General Partners. However, all such distributions to the General Partners are subordinated to the Limited Partners' receipt of their capital, plus the stipulated return thereon. Escrow for Taxes All escrow funds are currently held by the Partnership and are designated for the payment of real estate taxes. Loan Costs Loan costs of $538,000 incurred with the financing of the mortgage note payable are included in "Other assets" and are being amortized on a straight-line basis over the life of the loan. Accumulated amortization at December 31, 1996 is $171,000. Income Taxes The financial statements include only those assets and liabilities and revenues and expenses which relate to the business of the Partnership. No provision has been made for Federal income taxes since such taxes are the personal responsibility of the partners. Depreciation Depreciation is computed utilizing the straight-line method over an estimated useful life of 10 to 40 years for buildings and improvements and 5 years for furniture and fixtures. F-20 5100 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Cash and Cash Equivalents -- Unrestricted Cash The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted Cash -- Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease and considers the deposits to be restricted cash. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Leases The Partnership generally leases apartment units for twelve-month terms or less. Restricted Escrows 1) Capital Improvement Reserves At the time of the refinancing of the mortgage note payable, $365,000 of the proceeds were designated for "capital improvement escrows" for certain capital improvements. At December 31, 1996 the balance in the escrow was $301,000, which includes interest earned on these funds. Upon completion of the scheduled property improvements, any excess will be returned to the property for operations. 2) Replacement Reserve Account In addition to the Capital Improvement Reserves, replacement reserves of $147,000 were established with the refinancing proceeds. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. At December 31, 1996, the balance was $159,000. Investment Property The Partnership accounts for its investment property in accordance with FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising Costs Advertising costs ($66,000 in 1996) are charged to expense as they are incurred and are included in operating expenses. F-21 5101 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- MORTGAGE NOTE PAYABLE (DOLLAR AMOUNTS IN THOUSANDS) The principal terms of the mortgage note payable are as follows: Mortgage note payable to Lexington Mortgage Company, secured by a deed of trust on the Yorktown Towers Apartments. This note bears interest at a rate of 9.84% per annum. Monthly installments of principal and interest of $110 are due through October 2001...................................... $12,483 =======
The mortgage note payable is non-recourse to the Partnership and is secured by pledge of the investment property and by pledge of revenues from the property. The note may be repaid prior to maturity, including a prepayment penalty of a minimum of 1% of the outstanding balance. It may not be repaid prior to October 15, 1997. Scheduled principal payments of the mortgage note payable for the five years subsequent to December 31, 1996, are as follows: 1997...................................................... $ 90 1998...................................................... 99 1999...................................................... 109 2000...................................................... 121 2001...................................................... 12,064 ------- $12,483 =======
NOTE C -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The partnership agreement provides for payments to affiliates of the General Partner for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were paid to the affiliates of the General Partners in 1996 (in thousands): Property management fees.................................... $92 Reimbursement for investor services, asset management and partnership accounting.................................... 62
NOTE D -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-22 5102 REPORT OF INDEPENDENT AUDITORS To the Partners of Yorktown Towers Associates (a Limited Partnership) We have audited the accompanying balance sheet of Yorktown Towers Associates, as of December 31, 1995, and the related statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Yorktown Towers Associates as of December 31, 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP April 24, 1996 Greenville, South Carolina F-23 5103 YORKTOWN TOWERS ASSOCIATES BALANCE SHEET ASSETS
DECEMBER 31, ------------ 1995 ------------ Cash and cash equivalents: Unrestricted.............................................. $ 542,421 Restricted -- tenant security deposits.................... 133,659 Accounts receivable (net of allowance for doubtful accounts of $11,673 at December 31, 1995).......................... 7,132 Escrow for taxes............................................ 347,623 Restricted escrows.......................................... 531,721 Other assets................................................ 457,565 Investment property (Note B): Land...................................................... 1,475,040 Buildings and related personal property................... 15,765,430 ----------- 17,240,470 Less accumulated depreciation............................. (7,421,916) ----------- Net investment property........................... 9,818,554 ----------- $11,838,675 =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 94,574 Tenant security deposits.................................. 142,666 Other liabilities......................................... 605,774 Notes payable (Note B).................................... 12,564,473 Partners' deficit: General partners.......................................... (44,268) Limited partners (103 units issued and outstanding)....... (1,524,544) ----------- (1,568,812) ----------- $11,838,675 ===========
See accompanying notes. F-24 5104 YORKTOWN TOWERS ASSOCIATES STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 ------------ Revenues: Rental income............................................. $3,438,526 Other income.............................................. 295,167 ---------- Total revenues.................................... 3,733,693 ---------- Expenses: Operating................................................. 1,048,416 General and administrative................................ 110,703 Property management fees.................................. 172,310 Maintenance............................................... 347,952 Depreciation.............................................. 545,288 Interest.................................................. 1,322,766 Property taxes............................................ 416,496 ---------- Total expenses.................................... 3,963,931 ---------- Loss before extraordinary gain on forgiveness of debt....... (230,238) Extraordinary gain on forgiveness of debt (Note B).......... 254,122 ---------- Net income........................................ $ 23,884 ==========
See accompanying notes. F-25 5105 YORKTOWN TOWERS ASSOCIATES STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
GENERAL LIMITED PARTNERS PARTNERS TOTAL -------- ----------- ----------- Partners' deficit at December 31, 1994.................. $(44,268) $(1,548,428) $(1,592,696) Net income for the year ended December 31, 1995....... -- 23,884 23,884 -------- ----------- ----------- Partners' deficit at December 31, 1995.................. $(44,268) $(1,524,544) $(1,568,812) ======== =========== ===========
See accompanying notes. F-26 5106 YORKTOWN TOWERS ASSOCIATES STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995 ------------ Cash flows from operating activities Net income................................................ $ 23,884 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 545,288 Amortization of loan costs............................. 75,436 Extraordinary gain on forgiveness of debt.............. (254,122) Changes in assets and liabilities: Restricted cash...................................... -- Accounts receivable.................................. 6,337 Escrows for taxes.................................... (169,878) Other assets......................................... -- Accounts payable..................................... 82,608 Tenant security deposit liabilities.................. 12,577 Other liabilities.................................... (5,335) ---------- Net cash provided by operating activities......... 316,795 ---------- Cash flows from investing activities Property improvements and replacements.................... (206,706) Deposits to restricted escrows............................ (20,835) Receipts from restricted escrows.......................... -- ---------- Net cash used in investing activities............. (227,541) ---------- Cash flows from financing activities Payments on mortgage notes payable........................ (538,327) Proceeds from long-term borrowing......................... -- Loan costs................................................ (12,747) ---------- Net cash (used in) provided by financing activities....... (551,074) ---------- (Decrease) increase in cash............................... (461,820) Cash at beginning of year................................. 1,004,241 ---------- Cash at end of year....................................... $ 542,421 ========== Supplemental disclosure of cash flow information Cash paid for interest.................................... $1,240,342 ==========
See accompanying notes. F-27 5107 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 A. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Yorktown Towers Associates ("Partnership") is an Illinois limited partnership organized in November 1981 to acquire and operate residential property located in Lombard, Illinois. VMS Realty Investment Ltd. and VMS Realty, Inc., the Partnership's former general partners, withdrew from the Partnership and transferred their partnership interests to MAERIL, Inc., (the "General Partner") an affiliate of Insignia Financial Group, Inc., effective February 23, 1995. Allocation of Profits, Gains, Losses and Cash Distributions Pursuant to the terms of the Partnership Agreement, losses will be allocated 99% to the Limited Partners and 1% to the General Partners. Profits will be allocated in accordance with distributions of cash flow (as described below). Profits from the sale, exchange or other distribution of the Partnership's property will be allocated to the General Partners in an amount equal to the greater of 1% of such profits or the amount of cash distributable to the General Partners from any such sale or refinancing (as described below). Losses from the sale, exchange or other distribution of the Partnership property will be allocated 1% to the General Partners. The remaining sale, exchange or other distribution profits and losses will be allocated to the Limited Partners. Distributions of cash flow of the Partnership will be allocated first to the Limited Partners in an amount ranging from 5% to 14% per annum on a non-cumulative basis of their aggregate capital contributions, and the balance 66 2/3% to the Limited Partners and 33 1/3% to the General Partners. Distributions of proceeds arising from the sale or refinancing of the Partnership property will be allocated 66 2/3% to the Limited Partners and 33 1/3% to the General Partners. However, all such distributions to the General Partners are subordinated to the Limited Partners' receipt of their capital, plus the stipulated return thereon. Escrows for Taxes All escrow funds are currently held by the Partnership and are designated for the payment of real estate taxes. Loan Costs Loan costs of $538,337 are included in "Other assets" and are being amortized on a straight-line basis over the life of the loan. Accumulated amortization at December 31, 1995 is $93,589. Depreciation Depreciation is computed utilizing the straight-line method over an estimated useful life of 10 to 40 years for buildings and improvements and 5 years for furniture and fixtures. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Leases The Partnership generally leases apartment units for twelve-month terms or less. F-28 5108 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Restricted Escrows 1) Capital Improvement Reserves At the time of the refinancing of the mortgage note payable, $364,500 of the proceeds were designated for "capital improvement escrows" for certain capital improvements. At December 31, 1995, the balance in the escrow was $379,615, which includes interest earned on these funds. Upon completion of the scheduled property improvements, any excess will be returned to the property for operations. 2) Replacement Reserve Account In addition to the Capital Improvement Reserves, replacement reserves of $147,200 were established with the refinancing proceeds. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, out-of-pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. At December 31, 1995, the balance was $152,106. Tenant Security Deposits The Partnership requires security deposits from all lessees for the duration of the lease. Deposits are refunded when the tenant vacates the apartment if there has been no damage to the unit. Investment Properties Prior to 1995, the investment property was carried at the lower of cost or estimated fair value, which was determined using the higher of the property's non-recourse debt amount, when applicable, or the net operating income of the investment property capitalized at a rate deemed reasonable for the type of property. In 1995 the Partnership adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The effect of adoption was not material. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising Costs Advertising costs, $62,803 in 1995, are charged to expense as they are incurred and are included in operating expenses. Fair Value In 1995, the Partnership implemented Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. The carrying amount of the Partnership's cash and cash equivalents approximates fair value due to short-term maturities. The Partnership estimates the fair value of its fixed rate mortgage by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership. The carrying value of the mortgage approximates its estimated fair value. F-29 5109 YORKTOWN TOWERS ASSOCIATES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) B. NOTES PAYABLE During 1995, the Partnership's subordinated note payable was extinguished upon the Partnership's final payment of $464,228. The Partnership recognized an extraordinary gain on extinguishment of $254,122 due to forgiveness of debt. The principal terms of the refinanced mortgage note payable are as follows:
MONTHLY PRINCIPAL PRINCIPAL PAYMENT STATED BALANCE BALANCE AT INCLUDING INTEREST DUE AT DECEMBER 31, PROPERTY INTEREST RATE MATURITY DATE MATURITY 1995 -------- --------- -------- --------------- ----------- ------------ Yorktown Towers................ $109,520 9.94% October 1, 2001 $11,953,962 $12,564,473
The mortgage note payable is non-recourse to the Partnership and is secured by pledge of the investment property and by pledge of revenues from the property. The note may be repaid prior to maturity, including a prepayment penalty of a minimum of 1% of the outstanding balance. It may not be repaid prior to October 15, 1997. Scheduled principal payments of the mortgage note payable for the five years subsequent to December 31, 1995, are as follows: 1996.................................................... $ 81,508 1997.................................................... 89,900 1998.................................................... 99,156 1999.................................................... 109,365 2000.................................................... 120,626 Thereafter.............................................. 12,063,918 ----------- $12,564,473 ===========
C. TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The partnership agreement provides for payments to affiliates of the General Partner for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were paid to the affiliates of the General Partners in 1995 and 1994:
1995 ------- Affiliates of MAERIL, Inc.: Property management fees.................................. $66,229 Reimbursement for services of affiliates.................. 92,702 Affiliates of VMS Realty Investment Ltd.: Asset management fees..................................... 11,607
D. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and is controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-30 5110 APPENDIX A-1 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 financial statements for the years ended December 31, 1995, 1996 and 1997, and 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 property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the six months ending June 30, 1998; A-1 5111 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management; 6. [Reviewed multi-year operating projections for the Property 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 Property; 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 Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 9. Performed a site inspection of the Property; 10. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 11. Reviewed information provided by the Company relating to debt encumbering the Property; 12. [Reviewed any bids received for the Property 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 Property, 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 Property. 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 Property 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 Property 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 Property 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 5112 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 September , 1998 A-3 5113 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 5114 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: ****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: ****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.
II-2 5115 ****23.10.8 -- Snowden Village Associates, L.P. ****23.10.9 -- Sharon Woods, L.P. ****23.10.10 -- Rivercrest Apartments, Limited. ****23.11 -- Consent of Deloitte & Touche (Cedar-Tree Investors Limited Partnership and Wingfield Investors Limited Partnership). ****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). ****23.13 -- Consent of Barry S. Fishman & Associates (Ravensworth Associates Limited Partnership). 23.14 -- Consents of Imowitz Koenig LLP: ****23.14.1 -- Winthrop Apartment Investors Limited Partnership. ****23.14.2 -- Winrock -- Houston Limited Partnership. *****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. II-3 5116 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-3 5117 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-4 5118 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Apartment Investment and Management Company has duly caused this Amendment No. 2 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 5th 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. 2 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 5, 1998 - ----------------------------------------------------- Executive Officer Terry Considine /s/ PETER K. KOMPANIEZ* Vice Chairman and President October 5, 1998 - ----------------------------------------------------- Peter K. Kompaniez /s/ TROY D. BUTTS* Senior Vice President and October 5, 1998 - ----------------------------------------------------- Chief Financial Officer Troy D. Butts /s/ RICHARD S. ELLWOOD* Director October 5, 1998 - ----------------------------------------------------- Richard S. Ellwood /s/ J. LANDIS MARTIN* Director October 5, 1998 - ----------------------------------------------------- J. Landis Martin /s/ THOMAS L. RHODES* Director October 5, 1998 - ----------------------------------------------------- Thomas L. Rhodes /s/ JOHN D. SMITH* Director October 5, 1998 - ----------------------------------------------------- John D. Smith *By: /s/ TERRY CONSIDINE ------------------------------------------------ Terry Considine, as Attorney-in-Fact for each of the persons indicated
II-5 5119 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, AIMCO Properties, L.P. has duly caused this Amendment No. 2 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 5th 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. 2 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 5, 1998 - ----------------------------------------------------- Executive Officer Terry Considine /s/ PETER K. KOMPANIEZ* Vice Chairman and President October 5, 1998 - ----------------------------------------------------- Peter K. Kompaniez /s/ TROY D. BUTTS* Senior Vice President and October 5, 1998 - ----------------------------------------------------- Chief Financial Officer Troy D. Butts *By: /s/ TERRY CONSIDINE ------------------------------------------------ Terry Considine, as Attorney-in-Fact for each of the persons indicated
II-6 5120 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: ****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: ****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. ****23.10.8 -- Snowden Village Associates, L.P.
5121
EXHIBIT NUMBER DESCRIPTION ------- ----------- ****23.10.9 -- Sharon Woods, L.P. ****23.10.10 -- Rivercrest Apartments, Limited. ****23.11 -- Consent of Deloitte & Touche (Cedar-Tree Investors Limited Partnership and Wingfield Investors Limited Partnership). ****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). ****23.13 -- Consent of Barry S. Fishman & Associates (Ravensworth Associates Limited Partnership). 23.14 -- Consents of Imowitz Koenig LLP: ****23.14.1 -- Winthrop Apartment Investors Limited Partnership. ****23.14.2 -- Winrock -- Houston Limited Partnership. *****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. EX-23.8.1 2 CONSENT OF KPMG - BAYWOOD PARTNERS 1 EXHIBIT 23.8.1 INDEPENDENT AUDITORS' CONSENT General Partners Baywood Partners, Limited: We consent to the use of our reports relating to the audits of the consolidated financial statements - income tax basis as of and for the years ended December 31, 1997, 1996 and 1995 of Baywood Partners, Limited, included herein and to the reference to our firm under the heading "Experts" in the Prospectus Supplement. KPMG PEAT MARWICK LLP Greenville, South Carolina October 6, 1998 EX-23.8.2 3 CONSENT OF KPMG - BURGUNDY COURT ASSOC. 1 EXHIBIT 23.8.2 INDEPENDENT AUDITORS' CONSENT General Partners Burgundy Court, Limited: We consent to the use of our reports relating to the audits of the financial statements as of and for the years ended December 31, 1997, 1996 and 1995 of Burgundy Court, Limited, included herein and to the reference to our firm under the heading "Experts" in the Prospectus Supplement. KPMG PEAT MARWICK LLP Greenville, South Carolina October 6, 1998 EX-23.8.3 4 CONSENT OF KPMG - CATAWBA CLUB ASSOC. 1 EXHIBIT 23.8.3 INDEPENDENT AUDITORS' CONSENT General Partners Catawba Club Associates, Limited: We consent to the use of our reports relating to the audits of the financial statements as of and for the years ended December 31, 1997, 1996 and 1995 of Catabwa Club Associates, Limited, included herein and to the reference to our firm under the heading "Experts" in the Prospectus Supplement. Our reports dated February 23, 1998, contains an explanatory paragraph that states that the accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note E to the financial statements, the Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note E. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. KPMG PEAT MARWICK LLP Greenville, South Carolina October 6, 1998 EX-23.8.4 5 CONSENT OF KPMG - GEORGETOWN OF COLUMBUS 1 EXHIBIT 23.8.4 INDEPENDENT AUDITORS' CONSENT General Partners Georgetown of Columbus Associates, Limited: We consent to the use of our reports relating to the audits of the financial statements as of and for the years ended December 31, 1997, 1996, and 1995 of Georgetown of Columbus Associates, Limited, included herein and to the reference to our firm under the heading "Experts" in the Prospectus Supplement. KPMG PEAT MARWICK LLP Greenville, South Carolina October 6, 1998 EX-23.8.5 6 CONSENT OF KPMG - LA COLINA PARTNERS 1 EXHIBIT 23.8.5 INDEPENDENT AUDITORS' CONSENT General Partners La Colina Partners, Limited: We consent to the use of our reports relating to the audits of the consolidated financial statements--income tax basis as of and for the years ended December 31, 1997, 1996 and 1995 of La Colina Partners, Limited, included herein and to the reference to our firm under the heading "Experts" in the Prospectus Supplement. KPMG PEAT MARWICK LLP Greenville, South Carolina October 6, 1998 EX-23.8.6 7 CONSENT OF KPMG - LAKE EDEN ASSOC. 1 EXHIBIT 23.8.6 INDEPENDENT AUDITORS' CONSENT General Partners Lake Eden, Limited: We consent to the use of our reports relating to the audits of the financial statements as of and for the years ended December 31, 1997, 1996 and 1995 of Lake Eden, Limited, included herein and to the reference to our firm under the heading "Experts" in the Prospectus Supplement. KPMG PEAT MARWICK LLP Greenville, South Carolina October 6, 1998 EX-23.8.7 8 CONSENT OF KPMG - LANDMARK ASSOC. 1 EXHIBIT 23.8.7 INDEPENDENT AUDITORS' CONSENT General Partners Landmark Associates, Limited: We consent to the use of our reports relating to the audits of the financial statements as of and for the years ended December 31, 1997, 1996 and 1995 of Landmark Associates, Limited, included herein and to the reference to our firm under the heading "Experts" in the Prospectus Supplement. KPMG PEAT MARWICK LLP Greenville, South Carolina October 6, 1998 EX-23.8.8 9 CONSENT OF KPMG - NORTHBROOK APTS. 1 EXHIBIT 23.8.8 INDEPENDENT AUDITORS' CONSENT General Partners Northbrook Partners, Limited: We consent to the use of our reports relating to the audits of the consolidated financial statements - income tax basis as of and for the years ended December 31, 1997, 1996 and 1995 of Northbrook Partners, Limited, included herein and to the reference to our firm under the heading "Experts" in the Prospectus Supplement. KPMG PEAT MARWICK LLP Greenville, South Carolina October 6, 1998 EX-23.8.9 10 CONSENT OF KPMG - SHAKER SQUARE 1 EXHIBIT 23.8.9 INDEPENDENT AUDITORS' CONSENT General Partners Shaker Square, Limited: We consent to the use of our reports relating to the audits of the financial statements--income tax basis as of and for the years ended December 31, 1997, 1996 and 1995 of Shaker Square, Limited, included herein and to the reference to our firm under the heading "Experts" in the Prospectus Supplement. KPMG PEAT MARWICK LLP Greenville, South Carolina October 6, 1998 EX-23.8.10 11 CONSENT OF KPMG - THURBER MANOR ASSOC. 1 EXHIBIT 23.8.10 INDEPENDENT AUDITORS' CONSENT General Partners Thurber Manor Associates, Limited: We consent to the use of our reports relating to the audits of the financial statements as of and for the years ended December 31, 1997, 1996 and 1995 of Thurber Manor Associates, Limited, included herein and to the reference to our firm under the heading "Experts" in the Prospectus Supplement. KPMG PEAT MARWICK LLP Greenville, South Carolina October 6, 1998 EX-23.8.11 12 CONSENT OF KPMG - QUAIL RUN ASSOC. 1 EXHIBIT 23.8.11 INDEPENDENT AUDITORS' CONSENT General Partners Quail Run Associates, LP: We consent to the use of our reports relating to the audits of the financial statements as of and for the years ended December 31, 1997, 1996 and 1995 of Quail Run Associates, LP, included herein and to the reference to our firm under the heading "Experts" in the Prospectus Supplement. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note E to the financial statements, the Partnership is not generating sufficient cash flows to meet its maturing debt service requirements, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note E. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. KPMG PEAT MARWICK LLP Greenville, South Carolina October 6, 1998 EX-23.8.12 13 CONSENT OF KPMG - SYCAMORE CREEK ASSOC. 1 EXHIBIT 23.8.12 INDEPENDENT AUDITORS' CONSENT General Partners Sycamore Creek Associates, Limited: We consent to the use of our reports relating to the audits of the financial statements as of and for the years ended December 31, 1997, 1996 and 1995 of Sycamore Creek Associates, Limited, included herein and to the reference to our firm under the heading "Experts" in the Prospectus Supplement. KPMG PEAT MARWICK LLP Greenville, South Carolina October 6, 1998 EX-23.9 14 CONSENT OF PORTOCK, BYE & CO. 1 EXHIBIT 23.9 [PORTOCK, BYE & CO. LETTERHEAD] 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 reviewed reports dated March 6, 1998, March 19, 1997 and February 17, 1996, with respect to the financial statements of Brampton Associates, L.P. for the years ended December 31, 1997, 1996 and 1995, respectively, in the Registration Statement Form S-4 of Aimco Properties, L.P. Respectfully, /s/ PORTOCK, BYE & CO. Portock, Bye & Co. EX-23.10.1 15 CONSENT OF ERNST & YOUNG - RIVERCREEK APTS. 1 EXHIBIT 23.10.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated August 31, 1998, February 22, 1998, February 25, 1997, and March 5, 1996, with respect to the financial statements of Rivercreek Apartments Limited Partnership for the years ended December 31, 1997 and 1996 included in the Prospectus Supplement of AIMCO Properties, L.P. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 5, 1998 EX-23.10.2 16 CONSENT OF ERNST & YOUNG-CALMARK HERITAGE PARK II 1 EXHIBIT 23.10.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated March 17, 1998, March 19, 1997, February 29, 1996, with respect to the financial statements of Calmark Heritage Park II Limited Partnership for the years ended December 31, 1997, 1996 and 1995 included in the Prospectus Supplement of AIMCO Properties, L.P. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 5, 1998 EX-23.10.3 17 CONSENT OF ERNST & YOUNG - YORKTOWN TOWERS 1 EXHIBIT 23.10.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated March 13, 1998, March 4, 1997, April 24, 1996, with respect to the financial statements Yorktown Towers Associates Limited Partnership for the years ended December 31, 1997, 1996 and 1995 included in the Prospectus Supplement of AIMCO Properties, L.P. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 5, 1998 EX-23.10.4 18 CONSENT OF ERNST & YOUNG - SHANNON MANOR APTS. 1 EXHIBIT 23.10.4 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated February 10, 1998, February 10, 1997, and February 9, 1996, with respect to the financial statements of Shannon Manor Apartments, A Limited Partnership for the years ended December 31, 1997, 1996 and 1995 included in the Prospectus Supplement of AIMCO Properties, L.P. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 5, 1998 EX-23.10.5 19 CONSENT OF ERNST & YOUNG - WOODMERE ASSOC. 1 EXHIBIT 23.10.5 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated March 9, 1998, February 25, 1997, and March 6, 1996, with respect to the financial statements of Woodmere Associates Limited Partnership for the years ended December 31, 1997, 1996 and 1995 included in the Prospectus Supplement of AIMCO Properties, L.P. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 5, 1998 EX-23.10.6 20 CONSENT OF ERNST & YOUNG - SALEM ARMS OF AUGUSTA 1 EXHIBIT 23.10.6 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated February 10, 1998, February 10, 1997, February 9, 1996, with respect to the financial statements of Salem Arms of Augusta Limited Partnership for the years ended December 31, 1997, 1996 and 1995 included in the Prospectus Supplement of AIMCO Properties, L.P. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 5, 1998 EX-23.10.7 21 CONSENT OF ERNST & YOUNG - COASTAL COMMONS 1 EXHIBIT 23.10.7 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated August 31, 1998, February 17, 1998, February 26, 1997, and March 5, 1996, with respect to the financial statements of Coastal Commons Limited Partnership for the years ended December 31, 1997, 1996 and 1995 included in the Prospectus Supplement of AIMCO Properties, L.P. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 5, 1998 EX-23.10.8 22 CONSENT OF ERNST & YOUNG - SNOWDEN VILLAGE ASSOC. 1 EXHIBIT 23.10.8 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated September 1, 1998, with respect to the financial statements of Snowden Village Associates Limited Partnership for the years ended December 31, 1997 included in the Prospectus Supplement of AIMCO Properties, L.P. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 5, 1998 EX-23.10.9 23 CONSENT OF ERNST & YOUNG - SHARON WOODS 1 EXHIBIT 23.10.9 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated August 31, 1998, February 28, 1998, February 21, 1997, and February 28, 1996, with respect to the financial statements of Sharon Woods Limited Partnership for the years ended December 31, 1997, 1996 and 1995 included in the Prospectus Supplement of AIMCO Properties, L.P. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 5, 1998 EX-23.10.10 24 CONSENT OF ERNST & YOUNG - RIVERCREST APTS. 1 EXHIBIT 23.10.10 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated August 31, 1998, March 3, 1998, March 5, 1997, and March 9, 1996, with respect to the financial statements of Rivercrest Apartments Limited Partnership for the years ended December 31, 1997, 1996 and 1995 included in the Prospectus Supplement of AIMCO Properties, L.P. /s/ ERNST & YOUNG LLP Greenville, South Carolina October 5, 1998 EX-23.11 25 CONSENT OF DELOITTE & TOUCHE - CEDAR-TREE 1 EXHIBIT 23.11 [DELOITTE & TOUCHE LETTERHEAD] INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by referencing in this Registration Statement of AIMCO Properties, L.P. on Form S-4 of our reports dated February 17, 1998 (March 17, 1998 with respect to Note 6), on the financial statements of Cedar Tree Investors Limited Partnership and Wingfield Investors Limited Partnership as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, and to the reference to Deloitte & Touche LLP under the headings "Selected Financial Information" and "Experts" in the Prospectus which is part of this Registration Statement. /s/ DELOITTE & TOUCHE LLP Greenville, South Carolina October 2, 1998 EX-23.12 26 CONSENT OF REZNICK FEDDER & SILVERMAN - BURNSVILLE 1 EXHIBIT 23.12 [REZNICK FEDDER & SILVERMAN LETTERHEAD] CONSENT OF REZNICK FEDDER & SILVERMAN -------------------------- We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" and to the use of our reports dated as per the attached schedule, with respect to the financial statements per the attached schedule for the year ended December 31, 1997, in the Registration Statement Form S-4 (No. 333-60355) of Apartment Investment and Management Company and AIMCO Properties, L.P. REZNICK FEDDER & SILVERMAN /s/ REZNICK FEDDER & SILVERMAN Bethesda, Maryland October 5, 1998 EX-23.13 27 CONSENT OF BARRY S. FISHMAN & ASSOC. - RAVENSWORTH 1 EXHIBIT 23.13 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 March 29, 1998, February 27, 1997 and February 23, 1996, with respect to the financial statements of Ravensworth Associates Limited Partnership for the years ended December 31, 1997, December 31, 1996 and December 31, 1995, in the Registration Statement Form S-4 of AIMCO Properties, L.P. /s/ BARRY S. FISHMAN & ASSOCIATES, CHARTERED October 5, 1998 2 EX-23.14.1 28 CONSENT OF IMOWITZ KOENIG - WINTHROP APTS. 1 EXHIBIT 23.14.1 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 Apartment Investors 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 2, 1998 EX-23.14.2 29 CONSENT OF IMOWITZ KOENIG - WINROCK - HOUSTON 1 EXHIBIT 23.14.2 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 February 16, 1998, with respect to the financial statements of Winrock-Houston 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 2, 1998 -----END PRIVACY-ENHANCED MESSAGE-----