As filed with the Securities and Exchange Commission on October 9, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
AMLI RESIDENTIAL PROPERTIES TRUST
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Maryland 36-3925916
----------------------- ----------------------
(State of organization) (I.R.S. Employer
Identification Number)
125 South Wacker Drive
Suite 3100
Chicago, Illinois 60606
(312) 443-1477
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------------------
Allan J. Sweet
125 South Wacker Drive
Suite 3100
Chicago, Illinois 60606
(312) 443-1477
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------------
Copy of service to:
Edward J. Schneidman
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
(312) 782-0600
Approximate date of commencement of proposed sale to the public:
From time to time after the Registration Statement becomes effective.
------------------------------
<PAGE>
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check
the following box: [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following
box: [ X ]
If this 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 effective registration statement for the same offering:
[ ] ______________________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) 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: [ ] _______________________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box: [ ] ________________________
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BE REGISTERED BE REGISTERED PER SHARE (1) PRICE (1) FEE
- ------------------ ------------- --------------- ------------------ ------------
<S> <C> <C> <C> <C>
Series B Cumulative
Convertible Redeemable
Preferred Shares of
Beneficial Interest,
par value $.01
per share 3,125,000 shares $24.00 $75,000,000 $22,125
Common Shares of
Beneficial Interest,
par value $.01
per share 3,125,000 shares -- -- --
<FN>
(1) Pursuant to Rule 457(a) and (i) under the Securities Act of 1933, the registration fee has been calculated
on the basis of a bona fide estimate of the maximum offering price of the Series B Preferred Shares.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY
ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
</TABLE>
<PAGE>
The information in this Prospectus is not complete and may be
changed. The Selling Shareholders 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
PRELIMINARY PROSPECTUS DATED OCTOBER 9, 1998
PROSPECTUS
- ----------
AMLI RESIDENTIAL PROPERTIES TRUST
3,125,000 Series B Preferred Shares
3,125,000 Common Shares
This Prospectus relates to 3,125,000 shares of Series B Cumulative
Convertible Redeemable Preferred Shares of Beneficial Interest, par value
$.01 per share (the "Series B Preferred Shares"), and 3,125,000 Common
Shares of Beneficial Interest, par value $.01 per share (the "Common
Shares" and such 3,125,000 Common Shares, the "Shares"), of AMLI
Residential Properties Trust, a Maryland real estate investment trust (the
"Company"), which Security Capital Preferred Growth Incorporated ("SCPGI")
and/or its permitted transferees (the "Selling Shareholders") may offer for
sale from time to time. The Company may issue the Shares from time to time
upon exchange of the Series B Preferred Shares, which SCPGI purchased from
the Company in a private transaction. See "Selling Shareholders." The
Company is registering the Series B Preferred Shares and the Shares to
permit the Selling Shareholders to resell the Series B Preferred Shares and
the Shares and to permit public secondary trading of the Shares from time
to time, but the registration of the Series B Preferred Shares and the
Shares does not necessarily mean that the Selling Shareholders will offer
or sell any of the Series B Preferred Shares or the Shares.
The outstanding Common Shares are listed on the New York Stock
Exchange (the "NYSE") under the symbol "AML." The Series B Preferred
Shares are not listed on any exchange or quoted on any national quotation
system. To help ensure that the Company maintains its qualification as a
real estate investment trust ("REIT"), ownership by any person is limited
to 5% of the number or value of the outstanding shares of beneficial
interest of the Company, with certain exceptions. See "Description of
Capital Shares-Description of Common Shares-Restrictions on Transfer."
The Selling Shareholders may from time to time offer and sell the
Shares on the NYSE or otherwise and they may sell the Series B Preferred
Shares or the Shares at market prices or at negotiated prices. They may
sell the Series B Preferred Shares or the Shares in ordinary brokerage
transactions, in block transactions, in privately negotiated transactions,
pursuant to Rule 144 ("Rule 144") under the Securities Act of 1933, as
amended (the "Securities Act"), or otherwise as more fully described in
"Plan of Distribution." If the Selling Shareholders sell the Series B
Preferred Shares or the Shares through brokers, they expect to pay
customary brokerage commissions and charges. See "Plan of Distribution."
<PAGE>
The Company will not receive any of the proceeds from the sale of any
of the Series B Preferred Shares or the Shares by the Selling Shareholders,
but the Company has agreed to pay certain expenses of the registration and
sale of the Series B Preferred Shares and the Shares. See "Plan of
Distribution."
On October 7, 1998, the last reported sale price of the Common Shares
on the NYSE was $19 15/16 per share.
------------------------------
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 date of this Prospectus is , 1998
<PAGE>
THE COMPANY AND THE SELLING SHAREHOLDERS HAVE NOT AUTHORIZED ANY
PERSON IN CONNECTION WITH ANY OFFERING OF THE SHARES TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS.
THIS PROSPECTUS IS NOT AN OFFER TO SELL ANY SECURITY OTHER THAN THE SERIES
B PREFERRED SHARES AND THE SHARES AND IT IS NOT SOLICITING AN OFFER TO BUY
ANY SECURITY OTHER THAN THE SERIES B PREFERRED SHARES AND THE SHARES. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THE SERIES B PREFERRED SHARES OR THE
SHARES TO ANY PERSON AND IT IS NOT SOLICITING AN OFFER FROM ANY PERSON TO
BUY THE SERIES B PREFERRED SHARES OR THE SHARES IN ANY JURISDICTION WHERE
THE OFFER OR SALE TO THAT PERSON IS NOT PERMITTED. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ON ANY DATE
AFTER THE DATE OF THIS PROSPECTUS, EVEN THOUGH THIS PROSPECTUS IS DELIVERED
OR THE SERIES B PREFERRED SHARES OR THE SHARES ARE OFFERED OR SOLD ON A
LATER DATE.
TABLE OF CONTENTS
Page
----
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . .4
Description of Capital Shares . . . . . . . . . . . . . . . . . . .5
Federal Income Tax Considerations . . . . . . . . . . . . . . . . 18
Certain United States Tax Considerations for Non-U.S. Shareholders33
Selling Shareholders. . . . . . . . . . . . . . . . . . . . . . . 37
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . 37
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Available Information . . . . . . . . . . . . . . . . . . . . . . 39
Incorporation by Reference. . . . . . . . . . . . . . . . . . . . 40
<PAGE>
THE COMPANY
The Company and its affiliates constitute a self-administered and
self-managed REIT that was organized in February 1994 to continue and
expand the multifamily property business conducted by AMLI Realty Co. and
its affiliates ("ARC") since 1980. The Company and its affiliates own,
manage, lease, acquire and develop institutional quality apartment
communities. The Company's communities (the "Communities") are located in
specific markets in the Southwest, Southeast and Midwest areas of the
United States. The Company also holds interests in co-investment ventures
involving residential apartment communities (the "Co-Investment
Communities"). Additionally, the Company engages in development activities
on its own and through co-investment joint ventures.
The business of the Company is operated through AMLI Residential
Properties, L.P. (the "Operating Partnership"), AMLI Management Company
(the "Management Company"), AMLI Institutional Advisors, Inc. ("AIA") and
AMLI Residential Construction, Inc. ("Amrescon" and, together with the
Management Company and AIA, the "Service Companies"). The Company is the
sole general partner of the Operating Partnership, a Delaware limited
partnership, through which it owns the Communities and its interests in the
Co-Investment Communities. As of September 30, 1998, the Company owned
86.5% of the limited partnership interests ("Units") in the Operating
Partnership. The Management Company provides management and leasing
services to each of the Communities, the Co-Investment Communities and
several additional properties in which the Company has no interest. AIA, a
"QPAM" (qualified professional asset manager), renders real estate
investment advice to institutional capital sources, primarily pension
plans, endowments, foundations and insurance companies. The Company
actively pursues co-investments through relationships administered by AIA,
in this way seeking to diversify the sources of its equity capital for
investment in apartment communities. Amrescon provides general
contracting, construction management and landscaping services to the
Company and its managed ventures.
The Company was formed as a Maryland real estate investment trust on
December 16, 1993. The Company's executive offices are located at 125
South Wacker Drive, Suite 3100, Chicago, Illinois 60606 and its telephone
number is (312) 443-1477. The Company's principal office is in Chicago,
Illinois with regional offices in Dallas, Texas and Atlanta, Georgia.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of any
of the Series B Preferred Shares or the Shares. The Selling Shareholders
will receive all proceeds from the sale of the Series B Preferred Shares
and the Shares.
<PAGE>
DESCRIPTION OF CAPITAL SHARES
SHARES OF BENEFICIAL INTEREST AND SHAREHOLDER LIABILITY
The Company's Amended and Restated Declaration of Trust (the
"Declaration of Trust") provides that the Company may issue up to
150,000,000 shares of beneficial interest, par value $.01 per share. No
holder of any class of shares of beneficial interest of the Company will
have any preemptive right to subscribe for any securities of the Company
except as may be granted by the Board of Trustees (the "Board") in
authorizing the issuance of a class of preferred shares of beneficial
interest. Any class of preferred shares that may be issued in the future,
together with the Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $.01 per share (the "Series A Preferred
Shares"), and the Series B Preferred Shares, are referred to herein as
"Preferred Shares." The Company's Declaration of Trust authorizes the
Trustees to classify or reclassify any unissued Common Shares or Preferred
Shares by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption.
Both Maryland statutory law governing real estate investment trusts
organized under the laws of that state and the Company's Declaration of
Trust provide that no shareholder of the Company will be personally liable
for any obligations of the Company. The Company's Declaration of Trust
further provides, with certain limited exceptions, that the Company shall
indemnify each shareholder against claims or liabilities to which the
shareholder may become subject by reason of his being or having been a
shareholder and that the Company shall reimburse each shareholder for all
legal and other expenses reasonably incurred by him in connection with any
such claim or liability. In addition, it is the Company's policy to
include a clause in its contracts, including the partnership agreement of
the Operating Partnership, which provides that shareholders assume no
personal liability for obligations entered into on behalf of the Company.
However, with respect to tort claims, contractual claims where shareholder
liability is not so negated, claims for taxes and certain statutory
liability, a shareholder may, in some jurisdictions, be personally liable
to the extent that such claims are not satisfied by the Company. Inasmuch
as the Company will carry public liability insurance that it considers
adequate, any risk of personal liability to shareholders is limited to
situations in which the Company's assets plus its insurance coverage would
be insufficient to satisfy the claims against the Company and its
shareholders.
DESCRIPTION OF COMMON SHARES
General
The summary of certain terms and provisions of the Common Shares
contained in this Prospectus does not purport to be complete and is subject
to, and qualified in its entirety by reference to, the terms and provisions
of the Company's Declaration of Trust and Bylaws, as amended (the
"Bylaws"), which are incorporated by reference herein.
<PAGE>
All outstanding Common Shares issued are duly authorized, fully paid
and, except as described under "-Shares of Beneficial Interest and
Shareholder Liability," non-assessable. Subject to the provisions of the
Company's Declaration of Trust regarding Excess Shares (as defined below),
each outstanding Common Share entitles the holder thereof to one vote on
all matters voted on by shareholders, including the election of Trustees.
Holders of Common Shares do not have the right to cumulate their votes in
the election of Trustees, which means that the holders of a majority of the
outstanding Common Shares can elect all of the Trustees then standing for
election. Distributions may be paid to the holders of Common Shares if and
when declared by the Board out of funds legally available therefor, subject
to the provisions of the Company's Declaration of Trust regarding Excess
Shares. The Company currently pays regular quarterly dividends. Holders
of Common Shares have no conversion, redemption, preemptive or exchange
rights to subscribe to any securities of the Company. If the Company is
liquidated, each outstanding Common Share will be entitled to participate
pro rata in the assets remaining after payment of, or adequate provision
for, all known debts and liabilities of the Company and the rights of
holders of any Preferred Shares. The rights of holders of Common Shares
are subject to the rights and preferences established by the Board for any
Preferred Shares that have been or may be issued by the Company.
Restrictions on Transfer
The Company's Declaration of Trust contains certain restrictions on
the number of Common Shares and Preferred Shares that individual
shareholders may own. For the Company to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), no more than 50% in
value of its shares of beneficial interest (after taking into account
options to acquire shares of beneficial interest) may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities and constructive ownership among specified family members)
during the last half of a taxable year (other than the first taxable year)
or during a proportionate part of a shorter taxable year. The shares of
beneficial interest must also be beneficially owned (other than during the
first taxable year) by 100 or more persons during at least 335 days of a
taxable year or during a proportionate part of a shorter taxable year.
Because the Company expects to qualify as a REIT, the Declaration of Trust
of the Company contains restrictions on the acquisition of Common Shares
and Preferred Shares intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Company's Declaration
of Trust, no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 5% (the "Ownership Limit") of
the number or value of the issued and outstanding shares of beneficial
interest of the Company. The Company's Board, upon receipt of a ruling
from the Internal Revenue Service, an opinion of counsel or other evidence
satisfactory to the Board, and upon such other conditions as the Board may
direct, may also exempt a proposed transferee from the Ownership Limit. As
a condition of such exemption, the intended transferee must give written
notice to the Company of the proposed transfer no later than the fifteenth
day prior to any transfer which, if consummated, would result in the
intended transferee owning shares in excess of the Ownership Limit. The
Board may require such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary or advisable in order to determine or
ensure the Company's status as a REIT. Any transfer of Common Shares or
Preferred Shares that would (i) create a direct or indirect ownership of
shares in excess of the Ownership Limit, (ii) result in the shares being
beneficially owned by fewer than 100 persons as provided in Section 856(a)
<PAGE>
of the Code or (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, shall be null and void, and the
intended transferee will acquire no rights to the shares. The foregoing
restrictions on transferability and ownership will not apply if the Board
determines, which determination must be approved by the shareholders, that
it is no longer in the best interests of the Company to attempt to qualify,
or to continue to qualify, as a REIT.
The Company's Board by resolution has excluded from the foregoing
ownership restriction (i) UICI, a NASDAQ National Market traded holding
company with interests in insurance, financial services and technology,
which acquired ARC in November 1996, (ii) Gregory T. Mutz, Chairman of the
Board, and (iii) Harris Associates L.P., an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940, and Harris
Associates Inc., the sole general partner of Harris Associates L.P.
(together with Harris Associates L.P., "Harris"). UICI and Gregory T. Mutz
collectively may own up to 34.9% of the outstanding shares of beneficial
interest of the Company, or individually may own, subject to group
restrictions and certain limitations, up to 29.9% of the outstanding shares
of beneficial interest of the Company in the case of UICI and up to 24.9%
of the outstanding shares of beneficial interest of the Company in the case
of Gregory T. Mutz. Harris may own up to 9.9% of the outstanding shares of
beneficial interest of the Company. The Company's Declaration of Trust
excludes certain investors (and their transferees) from whom apartment
communities were obtained in exchange for Units or Common Shares in
connection with the formation of the Company and who would exceed the
Ownership Limit as a result of the ownership of such Common Shares or the
exchange of such Units for Common Shares. In no event will such persons be
entitled to acquire additional shares of beneficial interest of the Company
such that the five largest beneficial owners of shares of beneficial
interest of the Company hold more than 50% of the total outstanding shares.
Any purported transfer of shares that would result in a person owning
shares in excess of the Ownership Limit or cause the Company to become
"closely held" under Section 856(h) of the Code that is not otherwise
permitted as provided above will constitute excess shares ("Excess
Shares"), which will be transferred pursuant to the Declaration of Trust to
the Company as trustee for the exclusive benefit of the person or persons
to whom the Excess Shares are ultimately transferred, until such time as
the purported transferee retransfers the Excess Shares. While these Excess
Shares are held in trust, they will not be entitled to vote or to share in
any dividends or other distributions. Subject to the Ownership Limit, the
Excess Shares may be transferred by the purported transferee to any person
(if the Excess Shares would not be Excess Shares in the hands of such
person) at a price not to exceed the price paid by the purported transferee
(or, if no consideration was paid, fair market value), at which point the
Excess Shares will automatically be exchanged for the shares to which the
Excess Shares are attributable. In addition, such Excess Shares held in
trust are subject to purchase by the Company at a purchase price equal to
the lesser of the price paid for the shares by the purported transferee
(or, if no consideration was paid, fair market value) and the fair market
value of the shares of beneficial interest (as reflected in the last
reported sales price reported on the NYSE on the trading day immediately
preceding the relevant date, or if not then traded on the NYSE, the last
reported sales price of such shares on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system
over which such shares may be traded, or if not then traded over any
exchange or quotation system, then the market price of such shares on the
relevant date as determined in good faith by the Board) on the date the
Company elects to purchase.
<PAGE>
All certificates representing shares of beneficial interest will bear
a legend referring to the restrictions described above.
Transfer Agent and Registrar
Harris Trust and Savings Bank has been appointed as transfer agent
and registrar for the Common Shares.
DESCRIPTION OF SERIES B PREFERRED SHARES
General
On the date of this Prospectus, 3,125,000 Series B Preferred Shares
are outstanding. The Board is authorized, without the approval of the
shareholders, to cause the Company to issue Preferred Shares in one or more
series, to determine the number of shares of each series and to set the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption of each series, which may be senior to the rights of the Common
Shares.
This section describes certain general terms and provisions of the
Series B Preferred Shares. This description is not complete and you should
refer to the Company's Declaration of Trust and Bylaws for more
information.
Ranking
The Series B Preferred Shares rank, as to distributions and the
distribution of assets, (i) senior to the Common Shares and to any other
equity securities which the Company may issue from time to time and which
specifically provide that they rank junior to the Series B Preferred Shares
("Junior Shares"); (ii) on a parity with all equity securities which the
Company may issue from time to time and which specifically provide that
they rank on a parity with the Series B Preferred Shares ("Parity Shares");
and (iii) junior to the Series A Preferred Shares and any other equity
securities which the Company may issue from time to time and which
specifically provide that they rank senior to the Series B Preferred Shares
("Senior Shares"). However, any class or series of Preferred Shares are
deemed to be Senior Shares unless such Preferred Shares expressly provide
that they are Parity Shares or Junior Shares. The rights of the holders of
the Series B Preferred Shares are subordinate to those of the Company's
general creditors.
On the date of this Prospectus, 1,100,000 Series A Preferred Shares
are outstanding. The Series A Preferred Shares rank senior to the Series B
Preferred Shares as to the payment of distributions and the distribution of
assets upon liquidation, dissolution or winding up of the Company. For a
more complete description of the designations, preferences and rights of
the Series A Preferred Shares, see the description contained under the
caption "Description of Series A Preferred Shares" in the Prospectus
Supplement dated January 18, 1996 to the Prospectus dated July 20, 1995
forming a part of the Company's Registration Statement on Form S-3 (File
No. 33-93120), filed with the Securities and Exchange Commission (the
"Commission") pursuant to Rule 424(b) under the Securities Act, and the
related material contained under the caption "Description of Preferred
Shares" in the Prospectus dated July 20, 1995, which are incorporated
herein by reference.
<PAGE>
Distributions
The holders of Series B Preferred Shares are entitled to receive
when, as and if declared by the Board out of funds legally available for
that purpose, cumulative preferential cash distributions in an amount per
share equal to the greater of (i) $0.45 per quarter or (ii) the quarterly
distribution on the Common Shares into which a Series B Preferred Share
would then be convertible. The distributions are cumulative from the date
of original issue, whether or not the Company has funds legally available
to pay those distributions and whether or not the Board declares those
distributions, and are payable quarterly in arrears on the date on which
cash distributions are paid on the Common Shares for that quarter (each, a
"Distribution Payment Date"). Each distribution will be payable to holders
of record on the record date which is fixed by the Board. The record date
will not be more than 60 days prior to the corresponding Distribution
Payment Date and will be the same date as the record date for the Common
Share distribution for that quarter, if there is one. The distribution for
any period shorter than a full quarter will be prorated based on a 360-day
year of twelve 30-day months.
Holders of Series B Preferred Shares are not entitled to any
distributions in excess of the full cumulative distributions described
above. The Company will not pay interest, or any sum of money in lieu of
interest, in respect of any distribution payment or payments on the Series
B Preferred Shares which are in arrears.
So long as any Series B Preferred Shares are outstanding, the Company
may not declare or pay or set apart for payment any distributions or make
or declare any other distribution on any Parity Shares for any period
unless the Company has paid or declared and set apart a sum sufficient to
pay (or contemporaneously pays or declares and sets apart a sum sufficient
to pay) full cumulative distributions on the Series B Preferred Shares for
all past distribution periods. If the Company does not pay or declare and
set apart a sum sufficient to pay full cumulative distributions on the
Series B Preferred Shares for all past distribution periods, the Company
will declare all distributions on the Series B Preferred Shares and any
Parity Shares ratably in proportion to the amount of distributions accrued
and unpaid on the Series B Preferred Shares and on the Parity Shares.
So long as any Series B Preferred Shares are outstanding, the Company
may not declare or pay or set apart for payment any distributions (other
than in Junior Shares or in options, warrants or rights to purchase Junior
Shares) or make or declare any other distribution on any Junior Shares, nor
may the Company redeem, purchase or otherwise acquire for any consideration
any Junior Shares (or pay to or make available any moneys for a sinking
fund for the redemption of any Junior Shares) (except by conversion into or
exchange for Junior Shares) unless the Company has paid or declared and set
apart a sum sufficient to pay (or contemporaneously pays or declares and
sets apart a sum sufficient to pay) full cumulative distributions on the
Series B Preferred Shares and any Parity Shares for all past distribution
periods and the then current distribution period.
The Company will first credit any distribution payment which it makes
on the Series B Preferred Shares against the earliest accrued but unpaid
distribution due with respect to the Series B Preferred Shares which
remains payable.
<PAGE>
Liquidation Preference
Upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, before the Company makes or sets apart
any payment or distribution of its assets to or for the holders of any
Junior Shares, the holders of Series B Preferred Shares will be entitled to
receive $24.00 per share plus all accrued and unpaid distributions, but
those holders will not be entitled to any further payment. If, upon any
liquidation, dissolution or winding up of the Company, the assets of the
Company are insufficient to pay in full the liquidation preference on the
Series B Preferred Shares and on all Parity Shares, then the Company will
distribute its assets among the holders of Series B Preferred Shares and
Parity Shares in proportion to the full liquidating distributions which
would be payable.
Subject to the rights of the holders of any Senior Shares, upon any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, after the Company has made payment in full to all holders of
Series B Preferred Shares and Parity Shares, the holders of Junior Shares
will be entitled to receive any remaining assets.
For purposes of this section, a consolidation or merger of the
Company with or into one or more corporations, a sale or transfer of all or
substantially all of the Company's assets or a statutory share exchange
will not be deemed to be a liquidation, dissolution or winding up of the
Company.
Redemption
The Company may not redeem the Series B Preferred Shares prior to
September 30, 2007 (unless fewer than 312,500 shares of Series B Preferred
Shares are outstanding, in which case the Company may redeem all, but not
less than all, of those shares at any time). Beginning on September 30,
2007, the Company, at its option, may redeem the Series B Preferred Shares,
in whole at any time or in part from time to time, at a cash redemption
price equal to $24.00 per share plus all accrued and unpaid distributions
to the redemption date.
Notwithstanding the foregoing, unless the Company has paid or
declared and set apart a sum sufficient to pay (or contemporaneously pays
or declares and sets apart a sum sufficient to pay) full cumulative
distributions on the Series B Preferred Shares and any Parity Shares for
all past distribution periods, the Company may not redeem any Series B
Preferred Shares unless it redeems all outstanding Series B Preferred
Shares and the Company and its affiliates may not purchase or acquire any
Series B Preferred Shares, except pursuant to a purchase or exchange offer
made on the same terms to all holders of outstanding Series B Preferred
Shares.
The Company will mail notice of redemption of Series B Preferred
Shares not less than 30 days nor more than 60 days prior to the redemption
date to each holder of record of Series B Preferred Shares being redeemed
at the address shown on the Company's share records. Each notice will
state: (i) the redemption date; (ii) the number of Series B Preferred
Shares being redeemed; (iii) the place or places at which holders should
<PAGE>
surrender certificates representing Series B Preferred Shares being
redeemed; and (iv) the conversion price at the time. If fewer than all
Series B Preferred Shares held by a holder are being redeemed, the notice
will also specify the number of Series B Preferred Shares being redeemed
from the holder. If the Company mails notice of redemption of any Series B
Preferred Shares and deposits the funds necessary for the redemption in
trust, then, beginning on the redemption date, distributions will cease to
accrue on the Series B Preferred Shares being redeemed, those shares will
no longer be deemed outstanding and all rights of the holders of those
shares will cease, except the right to receive the redemption price. If the
Company redeems fewer than all the outstanding Series B Preferred Shares,
it will select the shares to be redeemed by lot or pro rata or by any other
method determined by the Company.
Conversion Rights
The holders of Series B Preferred Shares may, at their option,
convert Series B Preferred Shares into Shares, in whole at any time or in
part from time to time, at a conversion price of $24.00 per Share (which
equals a conversion rate of one Share for each Series B Preferred Share),
following the earliest to occur of (i) the sixty-first day after such
holder provides the Company with written notice of its intent to convert;
(ii) the first day on which a Change of Control (as defined below) occurs;
(iii) the occurrence of any event which causes the Company to fail to
continue to be taxed as a REIT under the Code; (iv) a default in the
payment of distributions on the Series B Preferred Shares; (v) a reduction
in the indicated rate of distributions on the Common Shares; or (vi) a
material breach by the Company of any representation, warranty or covenant
contained in the Preferred Share Purchase Agreement, dated as of February
20, 1998, by and among the Company, SCPGI and the Operating Partnership.
The Company may adjust the conversion price from time to time as described
below under "-Conversion Price Adjustments." Holders of Series B Preferred
Shares being redeemed will not be able to convert those shares after the
close of business on the redemption date.
A "Change of Control" means each occurrence of any of the following:
(i) the acquisition, directly or indirectly, by any individual, entity or
group (other than SCPGI, Gregory T. Mutz, UICI, ARC, Ronald L. Jensen, or
any of their respective affiliates) of beneficial ownership of the
Company's outstanding shares of beneficial interest with the power, under
ordinary circumstances, to cast more than 25% of the votes entitled to be
cast to elect trustees of the Company; (ii) the individuals who constitute
the Board at the beginning of any period of two consecutive years cease,
for any reason, to constitute a majority of the Board at the end of such
period; and (iii) (A) the Company consolidates with or merges into another
entity or conveys, transfers or leases all or substantially all of its
assets (including, but not limited to, real property investments) to any
individual or entity or (B) any entity consolidates with or merges into the
Company, which in either event (A) or (B) is pursuant to a transaction in
which the outstanding voting shares of beneficial interest of the Company
are reclassified or changed into or exchanged for cash, securities or other
property; PROVIDED, HOWEVER, that the events described in clause (iii)
shall not be deemed to be a Change of Control (X) if the Company's sole
purpose is to change its domicile or to change its form of organization
from a REIT to a statutory business trust or corporation or (Y) if the
holders of the exchanged securities of the Company immediately after such
transaction beneficially own at least a majority of the securities normally
entitled to vote in elections of trustees of the surviving entity.
<PAGE>
Holders of Series B Preferred Shares may convert those shares by
surrendering the certificate representing those shares endorsed to the
Company or in blank to the transfer agent for the Series B Preferred Shares
and the Common Shares, together with a written notice of conversion.
Holders of Series B Preferred Shares at the close of business on a
distribution record date will be entitled to receive that distribution on
the corresponding Distribution Payment Date, even if they convert the
Series B Preferred Shares into Shares between those two dates. The Company
will not otherwise make any payment or allowance for unpaid distributions,
whether or not in arrears, on converted Series B Preferred Shares or Shares
issued upon conversion.
Each conversion will be deemed to occur immediately before the close
of business on the business day on which the transfer agent receives the
certificate and the notice of conversion. The conversion price in effect at
that time will be the conversion price for that conversion. The Company
will not issue fractional Shares upon conversion. Instead, the Company will
pay cash to the converting holder based on the market price of the Shares
on the day prior to the conversion date.
Conversion Price Adjustments
The Company will adjust the conversion price if it (i) makes a
distribution on any of its Common Shares, (ii) subdivides, combines or
reclassifies the Common Shares, (iii) issues rights, options or warrants to
all holders of Common Shares entitling them to purchase additional Common
Shares at a price per share less than the fair market value (which includes
an adjustment if the Company does not pay underwriting commissions in a
rights offering), (iv) makes other noncash distributions to all holders of
Common Shares or (v) pays consideration per Common Share with a value
greater than the current market price of the Common Shares in a tender
offer.
The Company will not be required to make any adjustment to the
conversion price unless the adjustment equals 1% or more of the conversion
price. The Company will carry forward any adjustments not required to be
made and take them into account in subsequent adjustments.
If the Company is a party to any transaction as a result of which
Common Shares are converted into the right to receive shares, securities,
cash or other property (including a merger, consolidation, statutory share
exchange, tender offer, sale of all or substantially all of the Company's
assets or recapitalization), then each Series B Preferred Share will be
convertible into the kind and amount of shares, securities, cash or other
property which the holder of that share would have received if it had
converted the share immediately before the transaction. The Company may not
be a party to any transaction unless the terms of the transaction are
consistent with the terms described above.
Voting Rights
Holders of Series B Preferred Shares will not have any voting rights,
except as described in this section or as applicable law may otherwise
require from time to time.
<PAGE>
If and whenever (i) four quarterly distributions (whether or not
consecutive) payable on the Series B Preferred Shares are in arrears,
whether or not earned or declared, (ii) the Company has failed to pay
distributions on the Common Shares of at least $0.418 per share per quarter
for four consecutive quarters or (iii) the Company fails to satisfy the
test described below under "-Fixed Charge Coverage Test," then the number
of trustees then constituting the Board will be increased by two (or by
three if the Board has ten or more trustees prior to the increase), and the
holders of Series B Preferred Shares, together with the holders of any
Parity Shares, voting as a single class, will have the right to elect the
additional trustees at the next annual meeting of holders of beneficial
interest or at a special meeting. The rights of holders of Series B
Preferred Shares and Parity Shares to elect the additional trustees will
cease when the Company, as applicable, (i) pays all distributions in
arrears and sets aside a sum sufficient to pay the current distribution on
the Series B Preferred Shares and Parity Shares for two consecutive
quarters, (ii) pays distributions on the Common Shares of at least $0.418
per share per quarter for two consecutive quarters or (iii) satisfies the
test described below under "-Fixed Charge Coverage Test" for two
consecutive quarters. The term of office of the additional trustees will
terminate with the termination of those voting rights.
At least two-thirds of the outstanding Series B Preferred Shares must
approve in order for the Company to (i) make any amendment to the Company's
Declaration of Trust or Bylaws which materially and adversely affect the
voting powers, rights or preferences of the holders of Series B Preferred
Shares or (ii) authorize, reclassify, create or increase the authorized
amount of any Senior Shares or any security convertible into Senior Shares.
However, the Company may create additional classes and series of Senior
Shares, Parity Shares or Junior Shares and increase the authorized number
of such shares without the consent of any holder of Series B Preferred
Shares. The Company may also authorize, reclassify, create or increase the
authorized amount of any Senior Shares or any security convertible into
Senior Shares without the consent of any holder of Series B Preferred
Shares if either: (i) provision is made for the redemption of all Series B
Preferred Shares then outstanding or (ii) after giving effect to the
issuance of such Senior Shares and the application of the net proceeds
therefrom, the Company continues to be in compliance with the Fixed Charge
Coverage Test described below.
Except as described above or as applicable law may require from time
to time, the holders of Series B Preferred Shares will not be entitled to
vote on any merger or consolidation involving the Company or a sale of all
or substantially all of the assets of the Company.
Fixed Charge Coverage Test
So long as at least 312,500 Series B Preferred Shares are
outstanding, neither the Company nor any of its subsidiaries may issue any
additional preferred securities or incur any additional indebtedness
without the written consent of the holders of two-thirds of the outstanding
Series B Preferred Shares, if immediately after that issuance or incurrence
(and after giving effect to the issuance or incurrence and the use of the
proceeds), the Company's ratio of Consolidated EBITDA (as defined below) to
Consolidated Fixed Charges (as defined below) for the four prior quarters
would be less than 1.625 to 1.0.
<PAGE>
For purposes of the test described above, "Consolidated EBITDA" means
the Company's consolidated net income (before minority interest,
extraordinary items and other gains and losses) plus (i) income and state
franchise taxes paid or accrued by the Company, (ii) interest expense paid
or accrued by the Company, (iii) depreciation and depletion, (iv)
amortization, (v) fees (to the extent such fees were treated as expenses in
the calculation of consolidated net income of the Company) with respect to
any interest rate protection agreement and/or currency protection agreement
and (vi) other non-cash charges or discretionary prepayment penalties
deducted from consolidated net income. For purposes of that test,
"Consolidated Fixed Charges" means the sum of (i) interest expense paid or
accrued by the Company, (ii) preferred share distributions required to be
paid by the Company (whether or not actually declared or paid) and (iii)
costs related to any interest rate protection agreement and/or currency
protection agreement.
Restrictions on Transfer
The restrictions on transfer and ownership limitations described
above under "-Description of Common Shares-Restrictions on Transfer" also
apply to the Series B Preferred Shares. You should refer to that
description and the Company's Declaration of Trust and Bylaws for more
information.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S DECLARATION OF
TRUST AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law
and the Company's Declaration of Trust and Bylaws. The summary does not
purport to be complete and reference is made to Maryland law as well as the
Company's Declaration of Trust and Bylaws.
Board of Trustees
The Company's Declaration of Trust and Bylaws provide that the number
of Trustees of the Company may be established by a majority of the Board
but may not be fewer than three nor more than fifteen. The Declaration of
Trust provides that a majority of the Trustees must be persons who are not
affiliated with ARC or its affiliates ("Disinterested Trustees"). Any
vacancy on the Board will be filled, at any regular meeting or at any
special meeting called for that purpose, by a majority of the remaining
Trustees (even if less than a quorum), except that a vacancy resulting from
an increase in the number of Trustees will be filled by a majority of the
entire Board and, in the event that a majority of the Board are not
Disinterested Trustees by reason of the resignation or removal of one or
more Disinterested Trustees or otherwise, the remaining Disinterested
Trustees (or, if there are no Disinterested Trustees, the remaining members
of the Board) shall promptly appoint that number of Disinterested Trustees
necessary to cause the Board to include a majority of Disinterested
Trustees.
Pursuant to the terms of the Declaration of Trust, the Trustees are
divided into three classes. Each class consists, as nearly as possible, of
one-third of the total number of Trustees constituting the entire Board.
The Trustees in each class are elected for terms of three years and until
their successors are duly elected and qualified. The Company believes that
classification of the Board will help to assure the continuity and
stability of the Company's business strategies and policies as determined
by the Board.
<PAGE>
The classified Trustee provision could have the effect of making the
removal of incumbent Trustees more time-consuming and difficult, which
could discourage a third party from making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt
might be beneficial to the Company and its shareholders. At least two
annual meetings of shareholders, instead of one, will generally be required
to effect a change in a majority of the Board.
Holders of Common Shares have no right to cumulative voting for the
election of Trustees. Consequently, at each annual meeting of
shareholders, the holders of a majority of Common Shares voting together as
a single class will be able to elect all of the successors of the class of
Trustees whose term expires at that meeting.
Indemnification of Trustees and Officers
As permitted by Maryland law, the Declaration of Trust provides that
a Trustee or officer of the Company shall not be liable for money damages
to the Company or its shareholders for any act or omission in the
performance of his duties, except to the extent that (i) the person
actually received an improper benefit or (ii) the person's action or
failure to act was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated.
The Company's officers and Trustees are and will be indemnified under
the Declaration of Trust and Bylaws of the Company and the Partnership
Agreement of the Operating Partnership against certain liabilities. The
Declaration of Trust requires the Company to indemnify its Trustees and
officers, among others, against claims and liabilities and reasonable
expenses actually incurred by them in connection with any claim or
liability by reason of their services in those or other capacities unless
it is established that (i) the act or omission of the Trustee or officer
was material to the matter giving rise to the proceeding and (a) was
committed in bad faith or (b) was the result of active and deliberate
dishonesty, (ii) the Trustee or officer actually received an improper
personal benefit in money, property or services or (iii) in the case of any
criminal proceeding, the Trustee or officer had reasonable cause to believe
that the act or omission was unlawful. However, the Company may not
indemnify for an adverse judgment in a suit by or in the right of the
Company. Maryland law permits the Company to advance reasonable expenses to
a director or officer upon the Company's receipt of (i) a written
affirmation by the director or officer of his or her good faith belief that
he or she has met the standard of conduct necessary for indemnification by
the Company as authorized by the Company's Declaration of Trust and (ii) a
written statement by or on his or her behalf to repay the amount paid or
reimbursed by the Company if it is ultimately determined that the Trustee
or officer did not meet the standard of conduct. Additionally, the Company
has entered into indemnification agreements with the Company's officers and
Trustees providing substantially the same scope of coverage afforded by
provisions in the Declaration of Trust.
The Partnership Agreement of the Operating Partnership also provides
for indemnification of the Company and its officers and Trustees to the
same extent indemnification is provided to officers and Trustees of the
Company in its Declaration of Trust, and limits the liability of the
Company to the Operating Partnership and its partners to the same extent
the liability of the officers and Trustees of the Company to the Company
and its shareholders is limited under the Company's Declaration of Trust.
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to Trustees, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company
has been informed that, in the opinion of the Commission, that
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
Business Combinations
Under the Maryland General Corporation Law, as amended from time to
time (the "MGCL"), as applicable to Maryland real estate investment trusts,
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 real estate
investment trust and any person who beneficially owns 10% or more of the
voting power of the shares of the trust or an affiliate of the trust 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 shares of beneficial interest of the trust (an
"Interested Shareholder") or an affiliate thereof are prohibited for five
years after the most recent date on which the Interested Shareholder became
an Interested Shareholder. Thereafter, any such business combination must
be (a) recommended by the board of trustees of such trust and (b) approved
by the affirmative vote of at least (i) 80% of the votes entitled to be
cast by holders of outstanding voting shares of the trust and (ii) two-
thirds of the votes entitled to be cast by holders of outstanding voting
shares (other than voting shares held by the Interested Shareholder with
whom the business combination is to be effected or by an affiliate or
associate thereof), voting together as a single group, unless, among other
things, the company's common shareholders receive a minimum price (as
defined in the statute) for their shares and the consideration is received
in cash or in the same form as previously paid by the Interested
Shareholder for his shares. These provisions of Maryland law do not apply,
however, to business combinations with a particular Interested Shareholder
or its existing or future affiliates that are approved or exempted by the
board of trustees of the trust prior to the time that the Interested
Shareholder becomes an Interested Shareholder or if the original
declaration of trust includes a provision electing not to be governed, in
whole or in part, as to business combinations generally, specifically or
generally by types, as to identified or unidentified existing or future
Interested Shareholders or their affiliates. The Company's Declaration of
Trust, in accordance with Maryland law, exempts Gregory T. Mutz, Baldwin &
Lyons, Inc., a publicly traded casualty insurance company based in
Indianapolis ("Baldwin & Lyons"), and ARC and their respective affiliates
and successors from the foregoing restrictions. As a result, such persons
and entities may be able to enter into business combinations with the
Company, which may not be in the best interests of the shareholders,
without compliance by the Company with the super-majority voting
requirements and the other provisions of the statute.
Control Share Acquisitions
The MGCL, as applicable to Maryland real estate investment trusts,
imposes limitations on the voting rights of shares acquired in a "control
share acquisition" relating to a Maryland real estate investment trust.
The MGCL defines a "control share acquisition" as the acquisition of
"control shares," which is defined as voting shares that would entitle the
<PAGE>
acquiror to exercise voting power in electing trustees in excess of the
following levels of voting power: 20%, 33-1/3%, and 50%. The MGCL
requires a two-thirds shareholder vote (excluding shares owned by the
acquiring person and certain members of management) to accord voting rights
to shares acquired in a control share acquisition. The MGCL also requires
a Maryland real estate investment trust to hold a special meeting at the
request of an actual or proposed control share acquiror generally within 50
days after a request is made with the submission of an "acquiring person
statement," but only if the acquiring person (a) delivers a written
undertaking to pay the expenses of such special meeting or, if required by
the board of trustees, posts a bond for the cost of the meeting and (b)
submits a definitive financing agreement to the extent that financing is
not provided by the acquiring person. In addition, unless the charter or
bylaws provide otherwise, the MGCL gives a Maryland real estate investment
trust, within certain time limitations, various redemption rights if there
is a shareholder vote on the issue and the grant of voting rights is not
approved, or if an "acquiring person statement" is not delivered to the
target company within 10 days following a control share acquisition.
Moreover, unless the charter or bylaws provide otherwise, the MGCL provides
that if, before a control share acquisition occurs, voting rights are
accorded to the control shares which results in the acquiring person having
a majority of voting power, then minority shareholders are entitled to
appraisal rights. The fair value of the shares as determined for purposes
of such appraisal rights may not be less than the highest price per share
paid by the acquiror in the control share acquisition. The control share
acquisition statute does not apply (a) to shares acquired in a merger,
consolidation or share exchange if the trust is a party to the transaction
or (b) to acquisitions approved or exempted by the declaration of trust or
bylaws of the trust. The Company's Declaration of Trust, in accordance
with Maryland law, contains a provision exempting acquisitions of shares by
Gregory T. Mutz, Baldwin & Lyons and ARC and their respective existing and
future affiliates and successors (which, in the case of ARC, includes UICI)
from the foregoing provisions.
Amendment to the Declaration of Trust
The Company's Declaration of Trust may be amended only by the
affirmative vote or written consent of the holders of not less than a
majority of all of the shares of beneficial interest entitled to vote on
the matter, except that the Trustees by a two-thirds vote may amend
provisions of the Company's Declaration of Trust from time to time to
qualify as a real estate investment trust under the Code and Maryland law.
Termination of the Company
The Company's Declaration of Trust permits the termination of the
Company and the discontinuation of the operations of the Company by the
affirmative vote or written consent of the holders of not less than a
majority of the outstanding shares of beneficial interest.
<PAGE>
Advance Notice of Trustee Nominations and New Business
The Bylaws of the Company provide that (a) with respect to an annual
meeting of shareholders, nominations of persons for election to the Board
and the proposal of business to be considered by shareholders may be made
only (i) pursuant to the Company's notice of the meeting, (ii) by the Board
or (iii) by a shareholder who is entitled to vote at the meeting and has
complied with the advance notice procedures set forth in the Bylaws and (b)
with respect to special meetings of shareholders, only the business
specified in the Company's notice of meeting may be brought before the
meeting of shareholders, and nominations of persons for election to the
Board may be made only on terms similar to those for annual meetings.
Anti-Takeover Effect of Certain Provisions of Maryland Law and of the
Declaration of Trust and Bylaws
The business combination provisions and the control share acquisition
provisions of the MGCL, the provisions of the Declaration of Trust on
classification of the Board and the advance notice provisions of the Bylaws
could delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for holders of Common Shares or
otherwise be in their best interest.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of the material Federal income tax
consequences to the Company and its shareholders of the treatment of the
Company as a REIT. The discussion is general in nature and not exhaustive
of all possible tax considerations, nor does the discussion give a detailed
description of any state, local or foreign tax considerations. The
discussion does not discuss all aspects of Federal income tax law that may
be relevant to a prospective shareholder in light of his particular
circumstances or to certain types of shareholders (including insurance
companies, financial institutions or broker-dealers, tax-exempt
organizations, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the
Federal income tax laws.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING, AND EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH ITS TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE PURCHASE,
OWNERSHIP AND SALE OF THE COMMON SHARES, INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND
SALE, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Based on certain representations of the Company with respect to the
facts as set forth and explained in the discussion below, in the opinion of
Mayer, Brown & Platt, counsel to the Company, beginning with the Company's
taxable year ended December 31, 1994, the Company has been organized in
conformity with the requirements for qualification as a REIT, and the
Company's actual and proposed method of operations as described in this
Prospectus and as represented by management has enabled it and will
continue to enable it to satisfy the requirements for qualification as a
REIT.
<PAGE>
This opinion is conditioned on certain representations made by the
Company as to certain factual matters relating to the Company's
organization and intended or expected manner of operation. In addition,
this opinion is based on the law existing and in effect on the date hereof.
The Company's qualification and taxation as a REIT will depend upon the
Company's ability to meet on a continuing basis, through actual operating
results, asset composition, dividend levels and diversity of share
ownership, the various qualification tests imposed under the Code discussed
below. Mayer, Brown & Platt will not review compliance with these tests on
a continuing basis. No assurance can be given that the Company will
satisfy those tests on a continuing basis.
If certain detailed conditions imposed by the REIT provisions of the
Code are met, entities, such as the Company, that invest primarily in real
estate and that otherwise would be treated for Federal income tax purposes
as corporations, are generally not taxed at the corporate level on their
"REIT taxable income" that is currently distributed to shareholders and can
claim a deduction for the distributions it pays to its shareholders. This
treatment substantially eliminates the "double taxation" (i.e., at both the
corporate and shareholder levels) that generally results from the use of
corporations. However, as discussed in greater detail below, such an entity
remains subject to tax in certain circumstances even if it qualifies as a
REIT.
If the Company fails to qualify as a REIT in any year, however, it
will be subject to Federal income taxation as if it were a domestic
corporation, and its shareholders will be taxed in the same manner as
shareholders of ordinary corporations. In this event, the Company could be
subject to potentially significant tax liabilities, and therefore the
amount of cash available for distribution to its shareholders would be
reduced or eliminated.
The Company has elected REIT status effective for the taxable year
ended December 31, 1994, and the Board of the Company believes that the
Company has operated and expects that the Company will continue to operate
in a manner that will permit the Company to elect REIT status in each
taxable year thereafter. There can be no assurance, however, that this
belief or expectation will be fulfilled, since qualification as a REIT
depends upon the Company continuing to satisfy numerous asset, income and
distribution tests described below, which in turn will be dependent in part
upon the Company's operating results.
TAXATION OF THE COMPANY
GENERAL. In any year in which the Company qualifies as a REIT it
will not, in general, be subject to Federal income tax on that portion of
its REIT taxable income or capital gain which is distributed to
shareholders. The Company may, however, be subject to tax at normal
corporate rates upon any taxable income or capital gain not distributed.
Under recently enacted legislation, to the extent that the Company elects
to retain and pay income tax on its net long-term capital gain,
shareholders are required to include their proportionate share of the
Company's undistributed long-term capital gain in income but receive a
credit for their share of any taxes paid on such gain by the Company.
<PAGE>
Notwithstanding its qualification as a REIT, the Company may also be
subject to taxation in certain other circumstances. If the Company should
fail to satisfy either the 75% or the 95% gross income test (as discussed
below), and nonetheless maintains its qualification as a REIT because
certain other requirements are met, it will be subject to a 100% tax on the
greater of the amount by which the Company fails to satisfy either the 75%
test or the 95% test, multiplied by a fraction intended to reflect the
Company's profitability. The Company will also be subject to a tax of 100%
on net income from any "prohibited transaction" as described below, and if
the Company has (i) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of business or (ii) other non-qualifying income from
foreclosure property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. In addition, if the
Company 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, and (iii) any undistributed
taxable income from prior years, the Company would be subject to a 4%
excise tax on the excess of such required distribution over the amounts
actually distributed. To the extent that the Company elects to retain and
pay income tax on its long-term capital gain, such retained amounts will be
treated as having been distributed for purposes of the 4% excise tax. The
Company may also be subject to the corporate alternative minimum tax, as
well as tax in certain situations not presently contemplated. Each of the
Management Company, Amrescon and AIA will be taxed on its income at regular
corporate rates. The Company will use the calendar year both for Federal
income tax purposes and for financial reporting purposes.
In order to qualify as a REIT, the Company must meet, among others,
the following requirements:
SHARE OWNERSHIP TESTS. The Company's shares of beneficial interest
must be held by a minimum of 100 persons for at least 335 days in each
taxable year (or a proportional number of days in any short taxable year).
In addition, at all times during the second half of each taxable year, no
more than 50% in value of the outstanding shares of beneficial interest of
the Company may be owned, directly or indirectly, and by applying certain
constructive ownership rules, by five or fewer individuals, which for this
purpose includes certain tax-exempt entities. However, for purposes of
this test, any stock held by a qualified domestic pension or other
retirement trust will be treated as held directly by its beneficiaries in
proportion to their actuarial interest in such trust rather than by such
trust.
In order to attempt to ensure compliance with the foregoing share
ownership tests, the Company has placed certain restrictions on the
ownership and transfer of its shares of beneficial interest to prevent
additional concentration of share ownership. Moreover, to evidence
compliance with these requirements, under Treasury regulations the Company
must maintain records which disclose the actual ownership of its
outstanding shares of beneficial interest. In fulfilling its obligations
to maintain records, the Company must and will demand written statements
each year from the record holders of designated percentages of its shares
of beneficial interest disclosing the actual owners of such shares of
beneficial interest (as prescribed by Treasury regulations). If the Company
<PAGE>
complies with the Treasury regulations for ascertaining its actual
ownership and did not know, or exercising reasonable diligence would not
have reason to know, that more than 50% in value of its outstanding shares
of stock were held, actually or constructively, by five or fewer
individuals, then the Company will be treated as meeting such requirement.
A list of those persons failing or refusing to comply with such demand must
be maintained as a part of the Company's records. A shareholder failing or
refusing to comply with the Company's written demand must submit with his
tax return a similar statement disclosing the actual ownership of Company
shares of beneficial interest and certain other information. In addition,
the Company's Declaration of Trust provides restrictions regarding the
ownership and transfer of its shares of beneficial interest that are
intended to assist the Company in continuing to satisfy the share ownership
requirements. See "Description of Capital Shares-Description of Common
Shares-Restrictions on Transfer."
ASSET TESTS. At the close of each quarter of the Company's taxable
year, the Company must satisfy two tests relating to the nature of its
assets (with "assets" being determined in accordance with generally
accepted accounting principles). First, at least 75% of the value of the
Company's total assets must be represented by interests in real property,
interests in mortgages on real property, shares in other REITs, cash, cash
items, government securities and qualified temporary investments. Second,
although the remaining 25% of the Company's assets generally may be
invested without restriction, securities in this class may not exceed
(i) in the case of securities of any one non-government issuer, 5% of the
value of the Company's total assets or (ii) 10% of the outstanding voting
securities of any one such issuer (the "10% Voting Stock Test"). See "-
Recent Proposed Tax Legislation." When the Company invests in a
partnership (such as the Operating Partnership), it will be deemed to own a
proportionate share of the partnership's assets. See "-Tax Aspects of the
Company's Investments in Partnerships-General." Accordingly, the Company's
investment in the Communities and the Co-Investment Communities through its
interest in the Operating Partnership is intended to constitute an
investment in qualified assets for purposes of the 75% asset test.
The Operating Partnership owns 100% of the non-voting preferred stock
of each of the Management Company, Amrescon and AIA and 5% of the voting
common stock of each of the Management Company, Amrescon and AIA. See "The
Company." By virtue of its partnership interest in the Operating
Partnership, the Company is deemed to own its pro rata share of the assets
of the Operating Partnership, including the securities of the Management
Company, Amrescon and AIA, as described above. Because the Operating
Partnership owns only 5% of the voting securities of each of the Management
Company, Amrescon and AIA and the preferred stock's approval right in the
case of each of the Management Company, Amrescon and AIA is limited to
certain fundamental corporate actions that could adversely affect the
preferred stock as a class, the 10% limitation on holdings of voting
securities of any one issuer should not be exceeded.
<PAGE>
Based upon its analysis of the total estimated value of the
Management Company stock, Amrescon stock and AIA stock and the subordinated
notes of the Management Company and AIA (each, a "Subordinated Note"),
respectively, owned by the Operating Partnership relative to the estimated
value of the total assets owned by the Operating Partnership and the other
assets of the Company, the Company believes that the Company's pro rata
share of the non-voting preferred stock, voting common stock and
Subordinated Note of the Management Company owned by the Operating
Partnership does not exceed, on the date of this Prospectus, 5% of the
value of the Company's total assets, that the Company's pro rata share of
the non-voting preferred stock and voting common stock of Amrescon owned by
the Operating Partnership does not exceed, on the date of this Prospectus,
5% of the value of the Company's total assets, and that the Company's pro
rata share of the non-voting preferred stock, voting common stock and
Subordinated Note of AIA owned by the Operating Partnership does not
exceed, on the date of this Prospectus, 5% of the value of the Company's
total assets. As to the securities of any Service Company, this 5%
limitation must be satisfied not only as of the date that the Company
(directly or through the Operating Partnership) acquired securities of the
Management Company, Amrescon or AIA, but also at the end of any quarter in
which the Company increases its interest in the Management Company,
Amrescon or AIA or so acquires other property. In this respect, if the
holder of a right to exchange Units for Common Shares exercises such
rights, the Company will thereby increase its proportionate (indirect)
ownership interest in the Management Company, Amrescon and AIA, thus
requiring the Company to meet the 5% test in any quarter in which such
conversion option is exercised. Although the Company plans to take steps
to ensure that it satisfies the 5% value test for any quarter with respect
to which retesting is to occur, there can be no assurance that such steps
will always be successful or will not require a reduction in the Operating
Partnership's overall interest in the Management Company, Amrescon or AIA.
GROSS INCOME TESTS. There are currently two separate percentage
tests relating to the sources of the Company's gross income which must be
satisfied for each taxable year. For purposes of these tests, where the
Company invests in a partnership, the Company will be treated as receiving
its share of the income and loss of the partnership, and the gross income
of the partnership will retain the same character in the hands of the
Company as it has in the hands of the partnership. See "-Tax Aspects of
the Company's Investments in Partnerships-General" below. The two tests
are as follows:
THE 75% TEST. At least 75% of the Company's gross income for the
taxable year must be "qualifying income." Qualifying income generally
includes (i) rents from real property (except as modified below);
(ii) interest on obligations secured by mortgages on, or interests in, real
property; (iii) gains from the sale or other disposition of interests in
real property and real estate mortgages, other than gain from property held
primarily for sale to customers in the ordinary course of the Company's
trade or business ("dealer property"); (iv) dividends or other
distributions on shares in other REITs, as well as gain from the sale of
such shares; (v) abatements and refunds of real property taxes; (vi) income
from the operation, and gain from the sale, of property acquired at or in
lieu of a foreclosure of the mortgage secured by such property
("foreclosure property"); (vii) commitment fees received for agreeing to
make loans secured by mortgages on real property or to purchase or lease
real property; and (viii) certain qualified temporary investment income
attributable to the investment of new capital received by the Company in
exchange for its shares during the one-year period following the receipt of
such capital.
<PAGE>
Rents received from a tenant will not, however, qualify as rents from
real property in satisfying the 75% test (or the 95% gross income test
described below) if the Company, or an owner of 10% or more of the Company,
directly or constructively owns 10% or more of such tenant. In addition,
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, an amount received or
accrued will not qualify as rents from real property (or as interest
income) for purposes of the 75% and 95% gross income tests if it is based
in whole or in part on the income or profits of any person, although an
amount received or accrued generally will not be excluded from "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Finally, for rents received to qualify
as rents from real property for purposes of the 75% and 95% gross income
tests, the Company generally must not operate or manage the property or
furnish or render services to tenants, other than through an "independent
contractor" from whom the Company derives no income, except that the
"independent contractor" requirement does not apply to the extent that the
services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only, or are not
otherwise considered "rendered to the occupant for his convenience." For
taxable years beginning after August 5, 1997, a REIT is permitted to render
a DE MINIMIS amount of impermissible services to tenants, or in connection
with the management of property, and still treat amounts received with
respect to that property as rent from real property. The amount received
or accrued by the Company during the taxable year for the impermissible
services with respect to a property may not exceed one percent of all
amounts received or accrued by the Company directly or indirectly from the
property. The amount received for any service (or management operation)
for this purpose shall be deemed to be not less than 150% of the direct
cost of the REIT in furnishing or rendering the service (or providing the
management or operation).
The Management Company (which does not satisfy the independent
contractor standard) provides management and leasing services to each of
the Communities and each of the Co-Investment Communities and may provide
certain services on any newly acquired properties of the Operating
Partnership. The Company believes for purposes of the 75% and 95% gross
income tests, that the services provided by the Management Company on the
Operating Partnership's properties and any other services and amenities
provided by the Operating Partnership or its agents with respect to such
properties are and will continue to be of the type usually or customarily
rendered in connection with the rental of space for occupancy only. The
Company intends to monitor the services and amenities provided by the
Management Company as management agent as well as by others, if any, on the
properties of the Operating Partnership. The Company intends that services
that cannot be provided directly by the Operating Partnership, the
Management Company or other agents will be performed by independent
contractors.
THE 95% TEST. In addition to deriving 75% of its gross income from
the sources listed above, at least 95% of the Company's gross income for
the taxable year must be derived from the above-described qualifying
income, or from dividends, interest, or gains from the sale or other
disposition of stock or other securities that are not dealer property.
Dividends and interest on any obligations not collateralized by an interest
in real property are included for purposes of the 95% test, but not for
purposes of the 75% test.
<PAGE>
For purposes of determining whether the Company complies with the 75%
and the 95% gross income tests, gross income does not include income from
prohibited transactions. A "prohibited transaction" is a sale of dealer
property (excluding foreclosure property); however, it does not include a
sale of property if such property is held by the Company for at least four
years and certain other requirements (relating to the number of properties
sold in a year, their tax bases, and the cost of improvements made thereto)
are satisfied. See "-Taxation of the Company-General" and "-Tax Aspects of
the Company's Investments in Partnerships-Sale of the Communities and Co-
Investment Communities."
The Company believes that, for purposes of both the 75% and the 95%
gross income tests, its investment in the Communities and the Co-Investment
Communities through the Operating Partnership will in major part give rise
to qualifying income in the form of rents, and that gains on sales of the
Communities and the Co-Investment Communities, or of the Company's interest
in the Operating Partnership, generally will also constitute qualifying
income.
The Management Company receives and anticipates continuing to receive
fee income in consideration of the performance of property management and
other services with respect to properties not owned by the Company or the
Operating Partnership, Amrescon receives and anticipates continuing to
receive fee income in consideration of the performance of general
contracting and construction management services, and AIA receives and
anticipates continuing to receive fee income for providing investment
advisory services; however, substantially all income derived by the Company
from the Management Company, Amrescon and AIA will be in the form of
dividends on the preferred stock and common stock of each of the Service
Companies owned by the Operating Partnership and interest on the
Subordinated Notes. Such dividends and interest income will satisfy the
95%, but not the 75%, gross income test (as discussed above). In addition,
the Company's share of any income realized on interest rate swap or cap
agreements, including income received at the time of entering into such
agreements, will generally satisfy the 95%, but not the 75%, gross income
test. The Company intends to closely monitor its non-qualifying income and
anticipates that non-qualifying income on its other investments and
activities, including such dividend income, interest income and interest
rate swap or cap income (if any), will not result in the Company failing
either the 75% or 95% gross income test.
Even if the Company fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may still qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions will generally be available if: (i) the Company's
failure to comply was due to reasonable cause and not to willful neglect;
(ii) the Company reports the nature and amount of each item of its income
included in the tests on a schedule attached to its tax return; and
(iii) any incorrect information on this schedule is not due to fraud with
intent to evade tax. If these relief provisions apply, however, the
Company will nonetheless be subject to a 100% tax on the greater of the
amount by which it fails either the 75% or 95% gross income test,
multiplied by a fraction intended to reflect the Company's profitability.
<PAGE>
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, the
Company is required to distribute dividends (other than capital gain
dividends) to its shareholders each year in an amount at least equal to
(A) the sum of (i) 95% of the Company's REIT taxable income (computed
without regard to the dividends paid deduction and the Company'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 non-cash
income. To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its REIT
taxable income, as adjusted, it will be subject to tax on the undistributed
amount at regular capital gains or ordinary corporate tax rates, as the
case may be. For taxable years beginning after August 5, 1997, a REIT is
permitted, with respect to undistributed net long-term capital gains it
received during the taxable year, to designate in a notice mailed to
shareholders within 60 days of the end of the taxable year (or in a notice
mailed with its annual report for the taxable year) such amount of such
gains which its shareholders are to include in their taxable income as
long-term capital gains. Thus, if the Company made this designation, the
shareholders of the Company would include in their income as long-term
capital gains their proportionate share of the undistributed net capital
gains as designated by the Company and the Company would have to pay the
tax on such gains within 30 days of the close of its taxable year. Each
shareholder of the Company would be deemed to have paid such shareholder's
share of the tax paid by the Company on such gains, which tax would be
credited or refunded to the shareholder. A shareholder would increase his
tax basis in the Company stock by the difference between the amount of
income to the holder resulting from the designation less the holder's
credit or refund for the tax paid by the Company.
The Company intends to make timely distributions sufficient to
satisfy the annual distribution requirements. In this regard, the Amended
and Restated Partnership Agreement of the Operating Partnership, as amended
(the "Partnership Agreement"), authorizes the Company, as general partner,
to take such steps as may be necessary to cause the Operating Partnership
to distribute to its partners an amount sufficient to permit the Company to
meet these distribution requirements. It is possible that the Company may
not have sufficient cash or other liquid assets to meet the 95%
distribution requirement, due to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing the
Company's REIT taxable income on the other hand; due to the Operating
Partnership's inability to control cash distributions with respect to any
properties as to which it does not have decision making control; or for
other reasons. To avoid a problem with the 95% distribution requirement,
the Company will closely monitor the relationship between its REIT taxable
income and cash flow and, if necessary, intends to borrow funds (or cause
the Operating Partnership or other affiliates to borrow funds) in order to
satisfy the distribution requirement. However, there can be no assurance
that such borrowing would be available at such time.
If the Company fails to meet the 95% distribution requirement as a
result of an adjustment to the Company's tax return by the Internal Revenue
Service, the Company may retroactively cure the failure by paying a
"deficiency dividend" (plus applicable penalties and interest) within a
specified period.
<PAGE>
FAILURE TO QUALIFY. If the Company fails to qualify for taxation as
a REIT in any taxable year and the relief provisions do not apply, the
Company will be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates.
Distributions to shareholders in any year in which the Company fails to
qualify as a REIT will not be deductible by the Company, nor generally will
they be required to be made under the Code. In such event, to the extent
of current and accumulated earnings and profits, all distributions to
shareholders will be taxable as ordinary income, and, subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends-received deduction. Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from
re-electing taxation as a REIT for the four taxable years following the
year during which qualification was lost.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
GENERAL. The Company holds a partnership interest in the Operating
Partnership. See "The Company." In general, a partnership is a
"pass-through" entity which is 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. The Company will include its
proportionate share of the foregoing partnership items for purposes of the
various REIT gross income tests and in the computation of its REIT taxable
income. See "-Taxation of the Company-General" and "-Gross Income Tests."
Accordingly, any resultant increase in the Company's REIT taxable
income from its interest in the Operating Partnership (whether or not a
corresponding cash distribution is also received from the Operating
Partnership) will increase its distribution requirements (see "-Taxation of
the Company-Annual Distribution Requirements"), but will not be subject to
Federal income tax in the hands of the Company provided that an amount
equal to such income is distributed by the Company to its shareholders.
Moreover, for purposes of the REIT asset tests (see "-Taxation of the
Company-Asset Tests"), the Company will include its proportionate share of
assets held by the Operating Partnership.
ENTITY CLASSIFICATION. The Company's interest in the Operating
Partnership involves special tax considerations, including the possibility
of a challenge by the Internal Revenue Service of the status of the
Operating Partnership as a partnership (as opposed to an association
taxable as a corporation for Federal income tax purposes). If the
Operating Partnership were to be treated as an association, it would be
taxable as a corporation and therefore subject to an entity-level tax on
its income. In such a situation, the character of the Company's assets and
items of gross income would change, which would preclude the Company from
satisfying the REIT asset tests and the REIT gross income tests (see "-
Taxation of the Company-Asset Tests" and "-Gross Income Tests"), which in
turn would prevent the Company from qualifying as a REIT. (See "-Taxation
of the Company-Failure to Qualify" above, for a discussion of the effect of
the Company's failure to meet such tests.)
<PAGE>
TAX ALLOCATIONS WITH RESPECT TO THE COMMUNITIES. Pursuant to
Section 704(c) of the Code, 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 (such as certain of the
Communities), 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 arrangements
among the partners. The formation of the Operating Partnership included
contributions of appreciated property (including certain Communities or
interests therein). Consequently, the Partnership Agreement requires
certain allocations to be made in a manner consistent with Section 704(c)
of the Code.
In general, certain contributors of certain of the Communities or
interests therein will be allocated lower amounts of depreciation
deductions for tax purposes and increased taxable income and gain on sale
by the Operating Partnership on the contributed assets (including certain
of the Communities). This will tend to eliminate the Book-Tax Difference
over the life of the 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 or a deemed sale, and accordingly
variations from normal Section 704(c) principles may arise, which could
result in the allocation of additional taxable income to the Company in
excess of corresponding cash proceeds in certain circumstances.
Treasury regulations issued under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences, including retention of the method under current law. The
Operating Partnership and the Company will use the remedial method for
making allocations under Section 704(c) with respect to the existing
Communities.
With respect to any property purchased by the Operating Partnership
subsequent to the admission of the Company to the Operating Partnership, in
general, such property will initially have a tax basis equal to its fair
market value, and Section 704(c) of the Code will not apply.
SALE OF THE COMMUNITIES AND CO-INVESTMENT COMMUNITIES. The Company's
share of any gain realized by the Operating Partnership on the sale of any
dealer property generally will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. See "-Taxation of the
Company-General" and "-Gross Income Tests-The 95% Test." Under existing
law, whether property is dealer property is a question of fact that depends
upon all the facts and circumstances with respect to the particular
transaction. The Operating Partnership intends to hold the Communities and
Co-Investment Communities for investment with a view to long-term
appreciation, to engage in the business of acquiring, owning, operating and
developing the Communities, Co-Investment Communities and other multifamily
<PAGE>
residential properties, and to make such occasional sales of the
Communities, Co-Investment Communities and other properties acquired
subsequent to the date hereof as are consistent with the Company's
investment objectives. Based upon the Company's investment objectives, the
Company believes that overall the Communities and Co-Investment Communities
should not be considered dealer property and that the amount of income from
prohibited transactions, if any, will not be material.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends or retained capital gains) will be
taken into account by them as ordinary income and will not be eligible for
the dividends-received deduction for corporations. Distributions (and for
tax years beginning after August 5, 1997, undistributed amounts) that are
designated as capital gain dividends will be taxed as long-term capital
gains (to the extent they do not exceed the Company's actual net capital
gain for the taxable year) without regard to the period for which the
shareholder has held its shares of beneficial interest of the Company.
However, corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. To the extent that the
Company makes distributions in excess of current and accumulated earnings
and profits, these distributions are treated first as a tax-free return of
capital to the shareholder, reducing the tax basis of a shareholder's
shares of beneficial interest by the amount of such excess distribution
(but not below zero), with distributions in excess of the shareholder's tax
basis being taxed as capital gains (if the shares of beneficial interest
are held as a capital asset). In addition, any dividend declared by the
Company in October, November or December of any year and payable to a
shareholder of record on a specific date in any such month shall be treated
as both paid by the Company and received by the shareholder on December 31
of such year, provided that the dividend is actually paid by the Company
during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Company. Federal income tax rules may also require
that certain minimum tax adjustments and preferences be apportioned to
Company shareholders.
The Company is permitted under the Code to retain and pay income tax
on its net capital gain for any taxable year. Under the Taxpayer Relief
Act of 1997 (the "1997 Act"), however, if the Company so elects, a
shareholder must include in income such shareholder's proportionate share
of the Company's undistributed capital gain for the taxable year, and will
be deemed to have paid such shareholder's proportionate share of the income
tax paid by the Company with respect to such undistributed capital gain.
Such tax would be credited against the shareholder's tax liability and
subject to normal refund procedures. In addition, each shareholder's basis
in such shareholder's Common Shares would be increased by the amount of
undistributed capital gain (less the tax paid by the Company) included in
the shareholder's income.
<PAGE>
The Internal Revenue Service Restructuring and Reform Act of 1998
(the "1998 Act"), which was recently passed by Congress and signed into law
by the President, alters the holding period with respect to taxation of
capital gain income for individuals (and for certain trusts and estates).
Pursuant to the 1997 Act, gain from the sale or exchange of certain
investments held for more than 18 months was taxed at a maximum capital
gain rate of 20%. Gain from the sale or exchange of those investments held
for 18 months or less, but for more than one year, was taxed at a maximum
capital gain rate of 28%. The 1997 Act also provided for a maximum rate of
25% for "unrecaptured section 1250 gain" recognized on the sale or exchange
of certain real estate assets. Pursuant to the 1998 Act, property held for
more than one year (rather than 18 months) will be eligible for the 20% and
25% capital gains rates discussed above. The 1998 Act applies to amounts
taken into account on or after January 1, 1998.
On November 10, 1997, the Internal Revenue Service issued Notice 97-
64, which provides generally that the Company may classify portions of its
designated capital gain dividends and deemed distributions of retained
capital gains as (i) a 20% rate gain distribution (which would be taxed as
capital gain in the 20% group), (ii) an unrecaptured Section 1250 gain
distribution (which would be taxed as capital gain in the 25% group) or
(iii) a 28% rate gain distribution (which would be taxed as capital gain in
the 28% group). If no designation is made, the entire designated capital
gain dividend will be treated as a 28% rate capital gain distribution.
Notice 97-64 provides that the Company must determine the maximum amounts
that it may designate as 20% and 25% rate capital gain dividends by
performing the computation required by the Code as if the Company were an
individual whose ordinary income was subject to a marginal tax rate of at
least 28%. Notice 97-64 has not yet been modified to incorporate the
changes made to the holding periods under the 1998 Act.
Shareholders of the Company should consult their tax advisor with
regard to (i) the application of the changes made by the 1997 Act and the
1998 Act with respect to taxation of capital gains and capital gain
dividends and (ii) state, local and foreign taxes on capital gains.
TAX CONSEQUENCES UPON CONVERSION OF SERIES B PREFERRED SHARES INTO
COMMON SHARES. Generally, except with respect to cash received in lieu of
fractional shares, no gain or loss will be recognized upon the conversion
of Series B Preferred Shares into Common Shares. The tax basis of a holder
of Series B Preferred Shares (a "Preferred Holder") in the Common Shares
received will equal that holder's tax basis in the Series B Preferred
Shares surrendered in the conversion reduced by any basis attributable to
fractional shares deemed received and the holding period for the Common
Shares will include the Preferred Holder's holding period for the Series B
Preferred Shares. Based on the Internal Revenue Service's present advance
ruling policy, cash received in lieu of a fractional Common Share upon
conversion of Series B Preferred Shares should be treated as a payment in
redemption of the fractional share interest in those Common Shares. See "-
Redemption of Series B Preferred Shares" below.
DEEMED DIVIDENDS ON SERIES B PREFERRED SHARES. The conversion price
of the Series B Preferred Shares may be adjusted if the Company makes
certain distributions of stock, cash, or other property to its
shareholders. While the Company does not presently contemplate making such
a distribution, if the Company makes a distribution of cash or property
resulting in an adjustment to the conversion price, a Preferred Holder may
be viewed as receiving a "deemed distribution" which is taxable as a
dividend under Sections 301 and 305 of the Code.
<PAGE>
REDEMPTION OF SERIES B PREFERRED SHARES. The treatment to be
accorded to any redemption by the Company of Series B Preferred Shares can
only be determined on the basis of particular facts as to each Preferred
Holder at the time of redemption. In general, a Preferred Holder will
recognize capital gain or loss measured by the difference between the
amount realized by the Preferred Holder upon the redemption and that
holder's adjusted tax basis in the Series B Preferred Shares redeemed
(provided the Series B Preferred Shares are held as a capital asset) if
that redemption (i) results in a "complete termination" of the Preferred
Holder's share interest in all classes of shares of the Company under
Section 302(b)(3) of the Code, (ii) is "substantially disproportionate"
with respect to the holder's interest in the Company under Section
302(b)(2) of the Code (which generally will not be the case if only Series
B Preferred Shares are redeemed, since they generally do not have voting
rights) or (iii) is "not essentially equivalent to a dividend" with respect
to the Preferred Holder under Section 302(b)(1) of the Code. In
determining whether any of these tests have been met, shares considered to
be owned by the Preferred 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 will be
satisfied with respect to any particular Preferred Holder depends upon the
facts and circumstances at the time when the determination must be made,
prospective investors are advised to consult their own tax advisors to
determine their tax treatment.
If the redemption does not meet any of the tests under Section 302 of
the Code, then the redemption proceeds received from the Series B Preferred
Shares will be treated as a distribution on the Series B Preferred Shares
as described under "-Taxation of Taxable Domestic Shareholders." If the
redemption is taxed as a dividend, the Preferred Holder's adjusted tax
basis in the Series B Preferred Shares will be transferred to any other
share holdings of that holder in the Company. If, however, the Preferred
Holder has no remaining share holdings in the Company, that basis could be
transferred to a related person or it may be lost.
BACKUP WITHHOLDING. The Company will report to its domestic
shareholders and to the Internal Revenue Service the amount of dividends
paid for each calendar year, and the amount of tax withheld, if any, with
respect thereto. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends
paid unless such shareholder (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 applicable
requirements of the backup withholding rules. A shareholder that does not
provide the Company with its correct taxpayer identification number may
also be subject to penalties imposed by the Internal Revenue Service. Any
amount paid as backup withholding is available as a credit against the
shareholder's income tax liability. In addition, the Company may be
required to withhold a portion of capital gain distributions made to any
shareholders who fail to certify their non-foreign status to the Company.
See "Certain United States Tax Considerations for Non-U.S. Shareholders-
Distributions from the Company-Capital Gain Dividends" below.
<PAGE>
TAXATION OF TAX-EXEMPT SHAREHOLDERS. The Internal Revenue Service
has issued a revenue ruling in which it held that amounts distributed by a
REIT to a tax-exempt employees' pension trust do not constitute unrelated
business taxable income ("UBTI"). Subject to the discussion below
regarding a "pension-held REIT," based upon such ruling and the statutory
framework of the Code, distributions by the Company to a shareholder that
is a tax-exempt entity should not constitute UBTI, provided that the
tax-exempt entity has not financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Code, that the shares
are not otherwise used in an unrelated trade or business of the tax-exempt
entity, and that the Company, consistent with its present intent, does not
hold a residual interest in a real estate mortgage investment conduit that
is an entity or arrangement that satisfies the standards set forth in
Section 860D of the Code.
However, if any pension or other retirement trust that qualifies
under Section 401(a) of the Code ("qualified pension trust") holds more
than 10% by value of the interests in a "pension-held REIT" at any time
during a taxable year, a portion of the dividends paid to the qualified
pension trust by such REIT may constitute UBTI. For these purposes, a
"pension-held REIT" is defined as a REIT if (i) such REIT would not have
qualified as a REIT but for the provisions of the Code which look through
such a qualified pension trust in determining ownership of shares of the
REIT and (ii) at least one qualified pension trust holds more than 25% by
value of the interests of such REIT or one or more qualified pension trusts
(each owning more than a 10% interest by value in the REIT) hold in the
aggregate more than 50% by value of the interests in such REIT. The Company
believes that it is not currently a "pension-held REIT." However, no
assurance can be given that the Company will not become a "pension-held
REIT" in the future.
OTHER TAX CONSIDERATIONS
THE MANAGEMENT COMPANY, AMRESCON AND AIA; OTHER CONSIDERATIONS. A
portion of the cash to be used by the Operating Partnership to fund
distributions to partners, including the Company, is expected to come from
the Management Company, Amrescon and AIA through dividends on the common
and preferred stock of the Management Company, Amrescon and AIA held by the
Operating Partnership and from interest on the Subordinated Notes. In
addition, the Management Company, Amrescon and AIA will each receive income
from the Company, the Operating Partnership and unrelated third parties.
Because the Company, the Operating Partnership, the Management Company,
Amrescon and AIA are related through stock or partnership ownership, income
of the Management Company, Amrescon or AIA from services performed for the
Company and the Operating Partnership may be subject to certain rules under
which additional income may be allocated to the Management Company,
Amrescon or AIA. On account of such ownership relationships, the
allocation of certain expenses and reimbursements thereof among the
Company, the Management Company, the Operating Partnership, Amrescon and
AIA could be subject to additional scrutiny by the Internal Revenue
Service.
<PAGE>
Each of the Management Company, Amrescon and AIA will pay Federal and
state income taxes at the full applicable corporate rates on its income
prior to payment of any dividends. Each of the Management Company,
Amrescon and AIA will attempt to minimize the amount of such taxes, but
there can be no assurance whether or to the extent to which measures taken
to minimize taxes will be successful. To the extent that the Management
Company, Amrescon and AIA are required to pay Federal, state, or local
taxes, the cash available for distribution by the Company to shareholders
will be reduced accordingly.
In addition, to the extent that tax exempt entities and foreign
persons hold shares of beneficial interest of the Company, the interest
expense deductions of the Management Company and AIA on the Subordinated
Notes could be reduced.
RECENT PROPOSED TAX LEGISLATION
On February 2, 1998, the Clinton administration released its budget
proposal for fiscal year 1999. The proposal includes a number of
provisions affecting REITs. One proposed provision would amend the 10%
Voting Stock Test described above. Pursuant to the Clinton administration
proposal, a REIT would remain subject to the current restriction and would
also be precluded from owning more than 10% of the value of all classes of
stock of any one issuer. If the proposal were enacted as currently
drafted, it would be effective with respect to stock acquired on or after
the date of the first committee action. To the extent that the Company's
current stock ownership in a subsidiary is grandfathered by virtue of this
effective date, the grandfathered status would terminate with respect to
the subsidiary if the subsidiary engaged in a new trade or business or
acquired substantial new assets.
Because the Company owns more than 10% of the value of the securities
of each of the Management Company, Amrescon and AIA, it could not presently
satisfy the new 10% value limitation with respect to such corporations.
Accordingly, if the proposal were enacted as currently drafted and the
Management Company, Amrescon or AIA were to engage in a new trade or
business or acquire substantial new assets, the grandfathered status of the
Company's ownership of stock in these entities would terminate and the
Company would fail to qualify as a REIT. Moreover, the Company would not
be able to own more than 10% of the vote or value of any subsidiary formed
after the effective date of the proposal. Thus, the proposal, if enacted
as currently drafted, may materially impede the ability of the Company to
engage in new third-party management or similar activities.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES.
Prospective shareholders should recognize that the present Federal income
tax treatment of investment in the Company may be modified by legislative,
judicial or administrative action at any time and that any such action may
affect investments and commitments previously made. The rules dealing with
Federal income taxation are constantly under review by persons involved in
the legislative process and by the Internal Revenue Service and the
Treasury Department, resulting in revisions of regulations and revised
interpretations of established concepts as well as statutory changes. No
assurance can be given as to the form or content (including with respect to
effective dates) of any tax legislation which may be enacted. Revisions in
Federal tax laws and interpretations thereof could adversely affect the tax
consequences of investment in the Company.
<PAGE>
STATE AND LOCAL TAXES. The Company and its shareholders may be
subject to state or local taxation, and the Company and the Operating
Partnership may be subject to state or local tax withholding requirements,
in various jurisdictions, including those in which it or they transact
business or reside. The state and local tax treatment of the Company and
its shareholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective shareholders should consult
their own tax advisors regarding the effect of state and local tax laws on
an investment in shares of beneficial interest of the Company.
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. SHAREHOLDERS
The following is a discussion of certain anticipated U.S. Federal
income and U.S. Federal estate tax consequences of the ownership and
disposition of shares of beneficial interest applicable to Non-U.S.
Shareholders of such shares. A "Non-U.S. Shareholder" is (i) any
individual who is neither a citizen nor resident of the United States, (ii)
any corporation or partnership other than a corporation or partnership
created or organized in the United States or under the laws of the United
States or any state thereof or under the laws of the District of Columbia
or (iii) any estate or trust that is not "resident" in the United States.
The discussion is based on current law and is for general information only.
The discussion does not address other aspects of U.S. Federal taxation
other than income and estate taxation or all aspects of U.S. Federal income
and estate taxation. The discussion does not consider any specific facts
or circumstances that may apply to a particular Non-U.S. Shareholder.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME, ESTATE AND
OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF BENEFICIAL
INTEREST.
DISTRIBUTIONS FROM THE COMPANY
ORDINARY DIVIDENDS. The portion of dividends received by Non-U.S.
Shareholders payable out of the Company's earnings and profits that are not
attributable to capital gains of the Company and that are not effectively
connected with a U.S. trade or business of the Non-U.S. Shareholder will be
subject to U.S. withholding tax at the rate of 30% (unless reduced by
treaty or the Non-U.S. Shareholder files an Internal Revenue Service Form
4224 with the Company certifying that the investment to which the
distribution relates is effectively connected to a United States trade or
business of such Non-U.S. Shareholder). Under certain limited
circumstances, the amount of tax withheld may be refundable, in whole or in
part, because of the tax status of certain partners or beneficiaries of
Non-U.S. Shareholders that are either foreign partnerships or foreign
estates or trusts. In general, Non-U.S. Shareholders will not be
considered engaged in a U.S. trade or business solely as a result of their
ownership of shares of beneficial interest. In cases where the dividend
income from a Non-U.S. Shareholder's investment in shares of beneficial
interest is (or is treated as) effectively connected with the Non-U.S.
Shareholder's conduct of a U.S. trade or business, the Non-U.S. Shareholder
generally will be subject to U.S. tax at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to such dividends (and
may also be subject to the 30% branch profits tax (unless reduced by
treaty) in the case of a Non-U.S. Shareholder that is a foreign
corporation).
<PAGE>
Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country
(unless the payor has knowledge to the contrary) for purposes of the
withholding rules discussed above and, under the current interpretation of
the Treasury Regulations, for purposes of determining the applicability of
a tax treaty rate. However, under recently finalized Treasury Regulations
effective for dividends paid after December 31, 1999 (the "New
Regulations"), a Non-U.S. Shareholder who wishes to claim the benefit of an
applicable treaty rate will be required to satisfy applicable certification
requirements on Internal Revenue Service Form W-8. The New Regulations
will also permit a reduced rate of withholding on payments of dividends to
foreign partnerships whose partners are entitled to a reduced rate of
withholding if the partners and the foreign partnership supply the
appropriate Internal Revenue Service certifications or if the foreign
partnership elects to be treated as a "qualified intermediary" for
withholding tax purposes. Under the New Regulations, Non-U.S. Shareholders
who claim that the dividends are effectively connected with the conduct of
a U.S. trade or business will have to supply Form W-8A in lieu of Form 4224
(Form W-8A to date has only been issued in proposed form and is subject to
change).
CAPITAL GAIN DIVIDENDS. Under the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"), any distribution made by the Company
to a Non-U.S. Shareholder, to the extent attributable to gains from
dispositions of United States Real Property Interests ("USRPIs") by the
Company ("USRPI Capital Gains"), will be considered effectively connected
with a U.S. trade or business of the Non-U.S. Shareholder 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, the Company will be required to
withhold tax equal to 35% of the amount of such distribution to the extent
it constitutes USRPI Capital Gains. Such distribution may also be subject
to the 30% branch profits tax (unless reduced by treaty) in the case of a
Non-U.S. Shareholder that is a foreign corporation.
NON-DIVIDEND DISTRIBUTIONS. Any distributions by the Company that
exceed both current and accumulated earnings and profits of the Company
will not be taxed as either ordinary dividends or capital gain dividends.
See "Federal Income Tax Considerations-Taxation of Shareholders-Taxation of
Taxable Domestic Shareholders." However, 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. Should this occur, the Non-U.S.
Shareholder may seek a refund of the amount over withheld from the Internal
Revenue Service once it is subsequently determined that such distribution
was, in fact, in excess of current and accumulated earnings and profits of
the Company.
Under the New Regulations, the Company will be entitled to make a
reasonable estimate of the portion of the distribution which is not a
dividend.
<PAGE>
DISPOSITIONS OF SHARES OF BENEFICIAL INTEREST
Unless the shares of beneficial interest constitute USRPIs, a sale or
exchange of shares of beneficial interest by a Non-U.S. Shareholder
generally will not be subject to U.S. taxation under FIRPTA. The shares of
beneficial interest will not constitute USRPIs if the Company 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.
Shareholders. It is currently anticipated that the Company will be a
domestically controlled REIT and, therefore, that the sale of shares of
beneficial interest will not be subject to taxation under FIRPTA. No
assurance can be given that the Company will continue to be a domestically
controlled REIT.
If the Company does not constitute a domestically controlled REIT, a
Non-U.S. Shareholder's sale or exchange of shares of beneficial interest
generally will still not be subject to tax under FIRPTA as a sale of USRPIs
provided that (i) the Company's shares of beneficial interest are
"regularly traded" (as defined by applicable Treasury regulations) on an
established securities market (e.g., the NYSE, on which the Common Shares
are listed) and (ii) the selling Non-U.S. Shareholder held 5% or less of
the Company's outstanding shares of beneficial interest at all times during
a specified testing period.
If gain on the sale or exchange of shares of beneficial interest were
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject
to U.S. income tax at the rates applicable to U.S. individuals or
corporations, and the purchaser of shares of beneficial interest could be
required to withhold 10% of the purchase price and remit such amount to the
Internal Revenue Service. The branch profits tax would not apply to such
sales or exchanges.
Capital gains not subject to FIRPTA will nonetheless be taxable in
the United States to a Non-U.S. Shareholder in two cases: (i) if the Non-
U.S. Shareholder's investment in shares of beneficial interest is
effectively connected with a U.S. trade or business conducted by such Non-
U.S. Shareholder, the Non-U.S. Shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain, (ii) if the Non-
U.S. Shareholder 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 30% tax on the individual's capital gain (unless reduced or
eliminated by treaty) or (iii) if the Non-U.S. Shareholder is subject to
tax pursuant to the Code provisions applicable to certain U.S. expatriates.
FEDERAL ESTATE TAX
Shares of beneficial interest owned or treated as owned by an
individual who is not a citizen or "resident" (as specifically defined for
U.S. Federal estate tax purposes) of the United States at the time of death
will be includable 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 includable in the estate for U.S. Federal estate tax purposes.
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Internal Revenue Service and
to each Non-U.S. Shareholder the amount of dividends (including any capital
gain dividends) paid to, and the tax withheld with respect to, each Non-
U.S. Shareholder. These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. Copies
of these returns may also be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in
which the Non-U.S. Shareholder resides.
U.S. backup withholding (which generally is imposed at the rate of
31% on certain payments to persons that fail to furnish the information
required under the U.S. information reporting requirements) and information
reporting will generally not apply to dividends (including any capital gain
dividends) paid on shares of beneficial interest to a Non-U.S. Shareholder
at an address outside the United States. However, under the New
Regulations, a Non-U.S. Shareholder may be required to provide
certification on Form W-8 to be exempt from backup withholding.
The payment of the proceeds from the disposition of shares of
beneficial interest to or through a U.S. office of a broker will be subject
to information reporting and backup withholding unless the owner, under
penalties of perjury, certifies, among other things, its status as a Non-
U.S. Shareholder, or otherwise establishes an exemption. The payment of
the proceeds from the disposition of shares of beneficial interest to or
through a non-U.S. office of a non-U.S. broker generally will not be
subject to backup withholding and information reporting, except as noted
below. In the case of a payment of proceeds from the disposition of shares
of beneficial interest to or through a non-U.S. office of a broker which is
(i) a U.S. person, (ii) a "controlled foreign corporation" for U.S. Federal
income tax purposes or (iii) a foreign person 50% or more of whose gross
income for certain periods is derived from a U.S. trade or business,
information reporting (but not backup withholding) will apply unless the
broker has documentary evidence in its files that the holder is a Non-U.S.
Shareholder (and the broker has no actual knowledge to the contrary) and
certain other conditions are met, or the holder otherwise establishes an
exemption. A payment of the proceeds from the disposition of shares of
beneficial interest to or through such broker will be subject to backup
withholding if such broker has actual knowledge that the holder is a U.S.
person.
Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules will be refunded or credited against the
Non-U.S. Shareholder's U.S. Federal income tax liability, provided that
required information is furnished to the Internal Revenue Service.
These backup withholding and information reporting rules are
currently under review by the Treasury Department, and their application to
shares of beneficial interest is subject to change.
<PAGE>
SELLING SHAREHOLDERS
On the date of this Prospectus, SCPGI owns all of the Series B
Preferred Shares. The 3,125,000 Series B Preferred Shares owned by SCPGI
were purchased from the Company in a private transaction and are
convertible into 3,125,000 Shares on the date of this Prospectus. The
Selling Shareholders may offer any and all of the Series B Preferred Shares
and the Shares pursuant to this Prospectus. If the Selling Shareholders
sell all of the Series B Preferred Shares and the Shares, SCPGI will not
own any Series B Preferred Shares or Common Shares after the completion of
this offering.
Under the terms of the Registration Rights Agreement, dated March 9,
1998, between SCPGI and the Company (the "Registration Rights Agreement"),
the Selling Shareholders may also include persons holding Shares as a
result of a transfer or assignment to that person of Shares from SCPGI
other than pursuant to an effective registration or Rule 144. Information
regarding the identity and share ownership of any Selling Shareholder other
than SCPGI will be described in a supplement to this Prospectus.
PLAN OF DISTRIBUTION
The Selling Shareholders may from time to time offer and sell the
Shares on the NYSE or otherwise and they may sell the Series B Preferred
Shares or the Shares at market prices or at negotiated prices. They may
sell the Series B Preferred Shares or the Shares in ordinary brokerage
transactions, in block transactions, in privately negotiated transactions,
through put or call transactions relating to the Series B Preferred Shares
or the Shares, through short sales of the Series B Preferred Shares or the
Shares, pursuant to Rule 144 or otherwise. Those transactions may or may
not involve brokers or dealers. The Selling Shareholders may include
Merrill Lynch International Private Finance Limited, a Delaware corporation
and pledgee of SCPGI, or any donees or other pledgees of the Selling
Shareholders after the date of this Prospectus. If the Selling
Shareholders sell the Series B Preferred Shares or the Shares through
brokers, they expect to pay customary brokerage commissions and charges.
The Company is registering the Series B Preferred Shares and the Shares to
permit the Selling Shareholders to resell the Series B Preferred Shares and
the Shares and to permit public secondary trading of the Shares from time
to time. The Company is required to register the Shares under the terms of
the Registration Rights Agreement.
The Company has agreed to pay all expenses (other than selling
commissions, underwriting discounts and share transfer taxes applicable to
any sale of Shares) of the Selling Shareholders in connection with the
registration and sale of the Series B Preferred Shares and the Shares. The
following table lists the estimated expenses in connection with the
registration and sale of the Series B Preferred Shares and the Shares, all
of which will be paid by the Company:
Registration fee . . . . . . . . . . . . . . $22,125
Transfer agent fees . . . . . . . . . . . . 2,500
Printing and duplicating expenses. . . . . . 3,000
Legal fees and expenses. . . . . . . . . . . 20,000
Accounting fees and expenses . . . . . . . . 5,000
Miscellaneous expenses . . . . . . . . . . . 3,000
-------
Total. . . . . . . . . . . . . . . . $55,625
=======
<PAGE>
The Selling Shareholders and any dealer, broker or other agent
selling the Series B Preferred Shares or the Shares for a Selling
Shareholder or purchasing the Series B Preferred Shares or the Shares from
a Selling Shareholder for purposes of resale may be deemed to be an
underwriter under the Securities Act and any compensation received by the
Selling Shareholder, dealer, broker or other agent may be deemed to be
underwriting compensation. The amount of such compensation cannot
currently be estimated. The Company knows of no existing arrangements
between any Selling Shareholder and any dealer, broker or other agent.
To comply with certain states' securities laws, if applicable, the
Series B Preferred Shares and the Shares may be sold in those states only
through brokers or dealers. In addition, the Series B Preferred Shares and
the Shares may not be sold in certain states unless they have been
registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
The Company has agreed to indemnify the Selling Shareholders and
their respective directors, officers and controlling persons against
certain liabilities relating to the Registration Statement (as defined
below), including certain liabilities under the Securities Act. Each
Selling Shareholder has agreed to indemnify the Company and its directors,
officers and controlling persons against certain liabilities relating to
information furnished by that Selling Shareholder to the Company in writing
for inclusion in the Registration Statement, including certain liabilities
under the Securities Act.
EXPERTS
The consolidated financial statements and schedule of AMLI
Residential Properties Trust as of December 31, 1997 and 1996, and for each
of the years in the three-year period ended December 31, 1997, have been
incorporated by reference herein and in the Registration Statement in
reliance on the report of KPMG Peat Marwick LLP, independent certified
public accountants, which report is incorporated by reference herein, and
on the authority of that firm as experts in accounting and auditing. To
the extent that KPMG Peat Marwick LLP audits and reports on financial
statements of AMLI Residential Properties Trust issued at future dates, and
consents to the use of their report thereon, such financial statements also
will be incorporated by reference in the Registration Statement in reliance
on their report and that authority.
LEGAL MATTERS
Mayer, Brown & Platt will pass on certain legal matters relating to
the validity of the Series B Preferred Shares and the Shares for the
Company. Mayer, Brown & Platt has in the past represented and is currently
representing the Company and certain of its affiliates.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and files
reports, proxy and information statements and other information with the
Commission. The public may read and copy any materials the Company files
with the Commission at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its regional offices at
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661 and Seven
World Trade Center, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The public
may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. The Commission maintains an
Internet site at http://www.sec.gov which contains any materials the
Company files with the Commission. The Company's outstanding Common Shares
are listed on the NYSE under the symbol "AML," and the public may read any
materials filed by the Company at the offices of the NYSE at 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on
Form S-3 (together with all amendments and exhibits, the "Registration
Statement") to register the Series B Preferred Shares and the Shares under
the Securities Act. This Prospectus, which is a part of the Registration
Statement, does not contain all the information included in the
Registration Statement, because certain information has been omitted as
permitted by the rules and regulations of the Commission. Statements made
in this Prospectus as to the content of any contract, agreement or other
document are not necessarily complete. With respect to each contract,
agreement or other document which is filed or incorporated by reference as
an exhibit to the Registration Statement or to a document incorporated by
reference in the Prospectus, you should refer to the exhibit for a more
complete description.
<PAGE>
INCORPORATION BY REFERENCE
The Company has filed the following documents with the Commission
(File No. 1-12784) pursuant to the Exchange Act and it is incorporating
those documents by reference in this Prospectus:
(i) The Company's Annual Report on Form 10-K, for the year ended
December 31, 1997;
(ii) The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998;
(iii) The Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998;
(iv) The Company's Current Report on Form 8-K dated June 11, 1997
(filed February 25, 1998);
(v) Description of the Common Shares included in the Company's
Registration Statement on Form 8-A (filed February 1, 1994); and
(vi) Description of the Series A Preferred Shares contained under
the caption "Description of Series A Preferred Shares" in the Prospectus
Supplement dated January 18, 1996 to the Prospectus dated July 20, 1995
forming a part of the Company's Registration Statement on Form S-3 (File
No. 33-93120), filed with the Commission pursuant to Rule 424(b) under the
Securities Act, and the related material contained under the caption
"Description of Preferred Shares" in the Prospectus dated July 20, 1995.
All documents which the Company files with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of the offering of the Series
B Preferred Shares and the Shares will be deemed to be incorporated by
reference in this Prospectus from the date of filing of such documents.
Any statement which is contained in a document which is incorporated or
deemed to be incorporated by reference in this Prospectus will be deemed to
be modified or superseded for purposes of this Prospectus to the extent
that a statement contained in this Prospectus or in another document which
is filed after the first document and which is incorporated or deemed to be
incorporated by reference in this Prospectus modifies or supersedes such
statement. Any statement which is so modified or superseded will not be
deemed, except as so modified or superseded, to be a part of this
Prospectus.
The Company will provide at no cost to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or
oral request of such person, a copy of any or all of the information which
has been incorporated by reference in this Prospectus but not delivered
with this Prospectus (not including exhibits to such information unless
those exhibits are specifically incorporated by reference in such
information). You should direct your requests to AMLI Residential
Properties Trust, 125 South Wacker Drive, Suite 3100, Chicago, Illinois
60606, Attention: Secretary. Telephone (312) 443-1477.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities registered hereby, all
of which will be paid by the Registrant:
Registration fee . . . . . . . . . . . . . . $22,125
Transfer agent fees. . . . . . . . . . . . . 2,500
Printing and duplicating expenses. . . . . . 3,000
Legal fees and expenses. . . . . . . . . . . 20,000
Accounting fees and expenses . . . . . . . . 5,000
Miscellaneous expenses . . . . . . . . . . . 3,000
-------
Total. . . . . . . . . . . . . . . . $55,625
=======
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
As permitted by Maryland law, the Declaration of Trust provides that
a Trustee or officer of the Registrant shall not be liable for money
damages to the Registrant or its shareholders for any act or omission in
the performance of his duties, except to the extent that (i) the person
actually received an improper benefit or (ii) the person's action or
failure to act was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated.
The Registrant's officers and Trustees are and will be indemnified
under the Declaration of Trust and Bylaws of the Registrant and the
Partnership Agreement of the Operating Partnership against certain
liabilities. The Declaration of Trust requires the Registrant to indemnify
its Trustees and officers, among others, against claims and liabilities and
reasonable expenses actually incurred by them in connection with any claim
or liability by reason of their services in those or other capacities
unless it is established that (i) the act or omission of the Trustee or
officer was material to the matter giving rise to the proceeding and (a)
was committed in bad faith or (b) was the result of active and deliberate
dishonesty, (ii) the Trustee or officer actually received an improper
personal benefit in money, property or services or (iii) in the case of any
criminal proceeding, the Trustee or officer had reasonable cause to believe
that the act or omission was unlawful. However, the Registrant may not
indemnify for an adverse judgment in a suit by or in the right of the
Registrant. Maryland law permits the Registrant to advance reasonable
expenses to a director or officer upon the Registrant's receipt of (i) a
written affirmation by the director or officer of his or her good faith
belief that he or she has met the standard of conduct necessary for
indemnification by the Registrant as authorized by the Registrant's
Declaration of Trust and (ii) a written statement by or on his or her
behalf to repay the amount paid or reimbursed by the Registrant if it is
ultimately determined that the Trustee or officer did not meet the standard
of conduct. Additionally, the Registrant has entered into indemnification
agreements with the Registrant's officers and Trustees providing
substantially the same scope of coverage afforded by provisions in the
Declaration of Trust.
<PAGE>
The Partnership Agreement of the Operating Partnership also provides
for indemnification of the Registrant and its officers and Trustees to the
same extent indemnification is provided to officers and Trustees of the
Registrant in its Declaration of Trust, and limits the liability of the
Registrant to the Operating Partnership and its partners to the same extent
the liability of the officers and Trustees of the Registrant to the
Registrant and its shareholders is limited under the Registrant's
Declaration of Trust.
The Registrant has agreed to indemnify the shareholders selling
securities pursuant to this Registration Statement and their respective
directors, officers and controlling persons against certain liabilities
relating to this Registration Statement, including certain liabilities
under the Securities Act. Each shareholder selling securities pursuant to
this Registration Statement has agreed to indemnify the Registrant and its
directors, officers and controlling persons against certain liabilities
relating to information furnished by that shareholder to the Registrant in
writing for inclusion in this Registration Statement, including certain
liabilities under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See the Exhibit Index included herewith which is incorporated herein
by reference.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any Prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(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;
<PAGE>
PROVIDED, HOWEVER, that paragraphs (a)(i) and (a)(ii) do
not apply if the Registration Statement is on Form S-3, Form S-8 or Form F-
3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the Registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial BONA FIDE offering thereof.
(c) 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.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 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.
The undersigned Registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth
the results of the subscription offer, the transactions by the underwriters
during the subscription period, the amount of unsubscribed securities to be
purchased by the underwriters, and the terms of any subsequent reoffering
thereof. If any public offering by the underwriters is to be made on terms
differing from those set forth on the cover page of the prospectus, a post-
effective amendment will be filed to set forth the terms of such offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the provisions set forth
or described in Item 15 of this Registration Statement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
If a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Trustee,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of AMLI Residential
Properties Trust, a Maryland real estate investment trust, and each of the
undersigned Trustees and officers of AMLI Residential Properties Trust,
hereby constitutes and appoints Gregory T. Mutz, John E. Allen, Allan J.
Sweet and Charles C. Kraft, its, his or her true and lawful attorneys-in-
fact and agents, for it, him or her and in its, his or her name, place and
stead, in any and all capacities, with full power to act alone, to sign any
and all amendments to this Registration Statement, and any registration
statement to register additional securities pursuant to Rule 462 under the
Securities Act of 1933, and to file each such document with all exhibits
thereto, and any and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform any and all acts and things required and necessary to be done, as
fully and to all intents and purposes as it, he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue
hereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago, State of Illinois on
October 8, 1998.
AMLI RESIDENTIAL PROPERTIES TRUST
By: /s/ John E. Allen
----------------------------------------
John E. Allen
Vice-Chairman of the Board of Trustees
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 8, 1998.
NAME TITLE
---- -----
/s/ Gregory T. Mutz Chairman of the Board of Trustees
Gregory T. Mutz (Principal Executive Officer)
/s/ Robert J. Chapman Executive Vice President
Robert J. Chapman (Principal Financial Officer)
/s/ Charles C. Kraft Treasurer
Charles C. Kraft (Principal Accounting Officer)
/s/ John E. Allen Vice-Chairman
John E. Allen of the Board of Trustees
/s/ Allan J. Sweet Trustee and President
Allan J. Sweet
/s/ Laura D. Gates Trustee
Laura D. Gates
/s/ Marc S. Heilweil Trustee
Marc S. Heilweil
/s/ Stephen G. McConahey Trustee
Stephen G. McConahey
/s/ Quintin E. Primo III Trustee
Quintin E. Primo III
/s/ John G. Schreiber Trustee
John G. Schreiber
/s/ Philip N. Tague Trustee
Philip N. Tague
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DOCUMENT DESCRIPTION
- ------- --------------------
4.1 Amended and Restated Agreement of Limited Partnership of AMLI
Residential Properties, L.P. (Incorporated by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994).
4.1(a) First Amendment to the Amended and Restated Agreement of
Limited Partnership of AMLI Residential Properties, L.P. (Incorporated by
reference to Exhibit 10.1(a) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
4.1(b) Second Amendment to the Amended and Restated Agreement of
Limited Partnership of AMLI Residential Properties, L.P. (Incorporated by
reference to Exhibit 10.1(b) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
4.1(c) Third Amendment to the Amended and Restated Agreement of
Limited Partnership of AMLI Residential Properties, L.P. (Incorporated by
reference to Exhibit 10.1(c) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996).
4.1(d) Fourth Amendment to the Amended and Restated Agreement of
Limited Partnership of AMLI Residential Properties, L.P. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998).
4.2 Form of Common Share Certificate (Incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33-71566).
5.1 Opinion of Mayer, Brown & Platt.
8.1 Tax Opinion of Mayer, Brown & Platt.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Mayer, Brown & Platt (Included in the opinions filed
as Exhibits 5.1 and 8.1 to this Registration Statement).
24.1 Power of Attorney (Included on the page of the Registration
Statement immediately preceding the signature page).
EXHIBIT 5.1
- -----------
[MAYER, BROWN & PLATT LETTERHEAD]
October 9, 1998
The Board of Trustees
AMLI Residential Properties Trust
125 South Wacker Drive
Chicago, Illinois 60606
Ladies and Gentlemen:
We have acted as special counsel to AMLI Residential Properties
Trust, a Maryland real estate investment trust (the "Company"), in
connection with the Company's registration of 3,125,000 Series B Cumulative
Convertible Redeemable Preferred Shares of Beneficial Interest, par value
$.01 per share (the "Series B Preferred Shares"), and 3,125,000 Common
Shares of Beneficial Interest, par value $.01 per share (the "Common
Shares"), into which the Series B Preferred Shares are convertible, as set
forth in the Form S-3 Registration Statement filed with the Securities and
Exchange Commission on the date hereof (the "Registration Statement").
As special counsel to the Company, we have examined originals or
copies certified or otherwise identified to our satisfaction of the
Company's Amended and Restated Declaration of Trust, as amended and
supplemented (the "Declaration of Trust"), and Amended and Restated Bylaws,
resolutions of the Company's Board of Trustees, and such other Company
records, instruments, certificates and documents and such questions of law
as we considered necessary or appropriate to enable us to express this
opinion. As to certain facts material to our opinion, we have relied, to
the extent we deem such reliance proper, upon certificates of public
officials and officers of the Company. In rendering this opinion, we have
assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic
original documents of all documents submitted to us as copies.
Based upon and subject to the foregoing and to the assumptions,
conditions and limitations set forth herein, we are of the opinion that:
(1) the Series B Preferred Shares have been duly authorized and
legally issued and are fully paid and, except as described below,
nonassessable; and
<PAGE>
The Board of Trustees
October 9, 1998
Page 2
(2) the Common Shares have been duly authorized and, when the
Common Shares are issued upon conversion of the Series B Preferred Shares
in accordance with the terms of the Company's Declaration of Trust, the
Common Shares will be legally issued, fully paid and, except as described
below, nonassessable.
Our opinion relating to the nonassessability of the Series B
Preferred Shares and the Common Shares does not pertain to the potential
liability of shareholders of the Company for debts and liabilities of the
Company. Section 5-350 of the Maryland Courts and Judicial Proceedings
Code provides that "a shareholder . . . of a real estate investment
trust . . . is not personally liable for the obligations of the real estate
investment trust." The Declaration of Trust provides that no shareholder
shall be personally liable in connection with the Company's property or the
affairs of the Company. The Declaration of Trust further provides that the
Company shall indemnify and hold harmless shareholders against all claims
and liabilities and related reasonable expenses to which they become
subject by virtue of their status as current or former shareholders. In
addition, we have been advised that the Company, as a matter of practice,
inserts a clause in its business, management and other contracts that
provides that shareholders shall not be personally liable thereunder.
Accordingly, no personal liability should attach to the Company's
shareholders for contract claims under any contract containing such a
clause where adequate notice is given. However, with respect to tort
claims, contract claims where shareholder liability is not so negated,
claims for taxes and certain statutory liability, the shareholders may, in
some jurisdictions, be personally liable for such claims and liabilities.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm in the
Registration Statement.
We express no opinion as to matters under or involving any laws other
than the laws of the State of Maryland regarding real estate investment
trusts, the State of Illinois and the Federal laws of the United States of
America.
Very truly yours,
/s/ MAYER, BROWN & PLATT
MAYER, BROWN & PLATT
EXHIBIT 8.1
- -----------
[Mayer, Brown & Platt Letterhead]
October 9, 1998
The Board of Trustees
Amli Residential Properties Trust
125 South Wacker Drive, Suite 3100
Chicago, Illinois 60606
Re: Status as a Real Estate Investment Trust ("REIT");
Partnership Classification; Information in the
Registration Statement under "FEDERAL INCOME TAX
CONSIDERATIONS" and "CERTAIN UNITED STATES TAX
CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS"
--------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Amli Residential Properties
Trust, a Maryland real estate investment trust ("ARPT"), in connection with
the registration of 3,125,000 Series B Cumulative Convertible Redeemable
Preferred Shares of Beneficial Interest of ARPT (the "Preferred Shares"),
all of which Preferred Shares may be offered and sold by certain selling
shareholders from time to time as set forth in the prospectus (the
"Prospectus") which forms a part of the Registration Statement on Form S-3
filed with the Securities and Exchange Commission on October 9, 1998, as
amended through the date hereof (the "Registration Statement"). Unless
otherwise specifically defined herein, all capitalized terms have the
meanings assigned to them in the Registration Statement.
In connection with the registration of the Preferred Shares, you have
requested our opinions concerning (i) the qualification and taxation for
Federal income tax purposes of the Company as a REIT; (ii) the treatment of
Amli Residential Properties, L.P. (the "Operating Partnership") as a
partnership for Federal income tax purposes, and not as an association
taxable as a corporation; and (iii) the information in the Registration
Statement under the headings "FEDERAL INCOME TAX CONSIDERATIONS" and
"CERTAIN UNITED STATES TAX CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS."
In formulating our opinions, we have reviewed and relied upon the
partnership agreement of the Operating Partnership (as amended to the date
hereof), the Registration Statement, other documents and information
provided by you, and such applicable provisions of law and other documents
as we have considered necessary or desirable for purposes of the opinions
expressed herein.
<PAGE>
The Board of Trustees
October 9, 1998
Page 2
In addition, we have relied upon the Company's certificate (the
"Officer's Certificate"), executed by a duly authorized officer of the
Company, setting forth certain representations relating to the organization
and actual and proposed operation of the Company, the Operating
Partnership, the Management Company, AIA, Amrescon and each of the
partnerships in which the Operating Partnership directly or indirectly
holds an interest and which actually owns an interest in real property (the
"Property Partnerships"). For purposes of our opinions, we have not made
an independent investigation of the facts set forth in such documents, the
Officer's Certificate, the partnership agreements for the Operating
Partnership or the Property Partnerships, or the Registration Statement.
We have, consequently, relied upon your representations that the
information presented in such documents or otherwise furnished to us
accurately and completely describes all material facts. No facts have come
to our attention, however, that would cause us to question the accuracy or
completeness of such facts or documents in a material way.
In rendering these opinions, we have assumed that the transactions
contemplated by the foregoing documents will be consummated in accordance
with the operative documents, and that such documents accurately reflect
the material facts of such transactions. In addition, the opinions are
based on the assumption that (i) the Company, the Operating Partnership,
the Management Company, AIA, Amrescon and the Property Partnerships have
operated and will continue to each be operated in the manner described in
the applicable partnership agreement or other organizational documents and
in the Registration Statement, (ii) all terms and provisions of such
agreements and documents have been and will continue to be complied with by
all parties thereto; and (iii) neither the Operating Partnership nor any
subtier partnership or limited liability company in which the Company
directly or indirectly holds an interest has elected or will elect to be
treated for federal income tax purposes as an association taxable as a
corporation. Our opinions expressed herein are based on the applicable
laws of the States of Maryland and Delaware, the Code, Treasury regulations
promulgated thereunder, and interpretations of the Code and such
regulations by the courts and the Internal Revenue Service, all as they are
in effect and exist at the date of this letter. It should be noted that
statutes, regulations, judicial decisions, and administrative
interpretations are subject to change at any time and, in some
circumstances, with retroactive effect. A material change that is made
after the date hereof in any of the foregoing bases for our opinions could
adversely affect our conclusions.
<PAGE>
The Board of Trustees
October 9, 1998
Page 3
Based upon and subject to the foregoing, it is our opinion that:
1. Beginning with the Company's taxable year ending December 31,
1994, the Company has been organized in conformity with the requirements
for qualification as a REIT under the Code, and the Company's actual and
proposed method of operation, as described in the Registration Statement
and as represented in the Officer's Certificate, has enabled it and will
continue to enable it to satisfy the requirements for qualification as a
REIT.
2. The Operating Partnership will be treated, for Federal income tax
purposes, as a partnership, and not as an association taxable as a
corporation.
3. The information in the Registration Statement under the headings
"FEDERAL INCOME TAX CONSIDERATIONS" and "CERTAIN UNITED STATES TAX
CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS," to the extent that it
constitutes matters of law or legal conclusions, has been reviewed by us
and is correct in all material respects.
Other than as expressly stated above, we express no opinion on any
issue relating to the Company, the Operating Partnership, any Property
Partnership or to any investment therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein and
under the caption "FEDERAL INCOME TAX CONSIDERATIONS" in the Registration
Statement.
Very truly yours,
/s/ MAYER, BROWN & PLATT
MAYER, BROWN & PLATT
EXHIBIT 23.1
- ------------
CONSENT OF KPMG PEAT MARWICK LLP
--------------------------------
The Board of Trustees and Shareholders
AMLI Residential Properties Trust:
We consent to incorporation by reference in the registration statement on
Form S-3 of AMLI Residential Properties Trust of our report dated
February 23, 1998, relating to the consolidated balance sheets of AMLI
Residential Properties Trust as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended
December 31, 1997, and the related financial statement schedule, which
report appears in the December 31, 1997 annual report on Form 10-K of AMLI
Residential Properties Trust and to the reference to our firm under the
heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Chicago, Illinois
October 9, 1998
EXHIBIT 23.2
- ------------
Consent of Mayer, Brown & Platt (Included in the opinions filed as
Exhibits 5.1 and 8.1 to this Registration Statement).
EXHIBIT 24.1
- ------------
Power of Attorney (Included on the page of the Registration
Statement immediately preceding the signature page).
